May 27, 2009
AMERICAN TAX FUNDING, LLC, PLAINTIFF-APPELLANT,
OSCAR CHARLES DAVIS, JR., INDIVIDUALLY AND AS EXECUTOR OF THE ESTATE OF MILDRED H. SCOTT, DIANE LYNNE DAVIS, TEISHA DAVIS, MRS. OSCAR CHARLES DAVIS, JR., WIFE OF OSCAR CHARLES DAVIS, JR., PROVIDENT SAVINGS BANK, HULAND A. SCOTT, CITIBANK SOUTH DAKOTA, N.A. AND THE STATE OF NEW JERSEY, DEFENDANTS, AND LITTLE NECK, LLC., DEFENDANT/INTERVENOR-RESPONDENT.
On appeal from Superior Court of New Jersey, Chancery Division, Union County, Docket No. F-13916-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 11, 2009
Before Judges Lihotz and Messano.
Plaintiff American Tax Funding, LLC, appeals from a June 30, 2008 order granting defendant Little Neck, LLC intervenor status and the right to redeem property that remains the subject of this foreclosure litigation. Guided by Simon v. Cronecker, 189 N.J. 304 (2007), we affirm.
The facts are as follows. Mildred H. Scott died testate on December 12, 2000. In her Last Will and Testament, Scott devised certain realty located at Lot 13, Block 527 on the tax map of the City of Plainfield, commonly known as 823-827 West 8th Street, Plainfield (the property), to defendant Oscar Charles Davis, Jr. and two others. Davis was named and qualified to serve as the executor of Scott's estate.
Unpaid real estate taxes accrued on the property. Plaintiff purchased municipal tax sale certificate No. 010562, on April 17, 2001. Plaintiff continued to pay all municipal assessments on the property. On September 12, 2005, plaintiff filed a complaint to foreclose all equity in the property and the right of redemption, pursuant to N.J.S.A. 54:5-86 to -87 of the Tax Sale Law, N.J.S.A. 54:5-1 to -137. An Order Setting Amount, Time and Place of Redemption was entered on April 9, 2008. The Order fixed the redemption amount at $54,525.99 and set May 27, 2008, as the last day to redeem.
On that date, Davis, individually and as executor of Scott's estate, entered into a contract with defendant to sell the property for $130,000. Defendant filed an application to stay the entry of final judgment of foreclosure and to allow it to intervene and redeem the property. On May 30, 2008, the court entered an Order to Show Cause staying entry of final judgment until defendant's motion seeking to intervene and other relief could be heard. Plaintiff opposed the motion, arguing the right of redemption had expired. Alternatively, plaintiff argued the contract should not be honored because the purchase price in the contract of sale reflected only "nominal consideration."
Judge Malone denied plaintiff's discovery requests, including discovery as to the value of the property. In an order filed on June 30, 2008, the court granted defendant intervenor status and found the purchase price of $130,000 exceeded "nominal consideration." The court granted defendant's motion to satisfy plaintiff's tax lien, redeem the property, and complete the transfer of title from Davis to defendant. Plaintiff appealed.
On appeal, plaintiff presents the following arguments for our consideration:
POINT I THE TRIAL COURT'S DECISION SHOULD BE REVERSED BECAUSE DEFENDANT WAS ACTING AS AN UNLICENSED DEBT ADJUSTER IN VIOLATION OF N.J.S.A. 17:16G-1, ET. SEQ.
POINT II THE TRIAL COURT'S DECISION SHOULD BE REVERSED BECAUSE THE TRIAL COURT MADE A RULING ON THE "NOMINAL CONSIDERATION" ISSUE WITHOUT HAVING "ALL THE CIRCUMSTANCES" BEFORE IT AS REQUIRED BY THE HIGH COURT IN SIMON V. CRONECKER.
POINT III ALTERNATIVELY, THE TRIAL COURT'S DECISION SHOULD BE REVERSED BECAUSE DEFENDANT FAILED TO OFFER THE DISTRESSED PROPERTY OWNER MORE THAN NOMINAL CONSIDERATION FOR THE PROPERTY AS REQUIRED BY THE HIGH COURT IN SIMON V. CRONECKER.
POINT IV ALTERNATIVELY, THE TRIAL COURT'S DECISION SHOULD BE REVERSED BECAUSE DEFENDANT'S ORDER TO SHOW CAUSE APPLICATION SEEKING TO INTERVENE AND REDEEM IN THE FORECLOSURE WAS UNTIMELY.
The issue stated in Point One was not raised before the trial court and, therefore, will not be considered on appeal. The issue does not present a question of constitutional dimension or public import that requires resolution without initial consideration by the trial judge. Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234-35 (1973). Determination of the remaining issues is informed by a review of the Supreme Court's opinion in Cronecker. Thus, before we proceed with our discussion, we briefly recite the facts and conclusion presented in that opinion.*fn1
The plaintiff, Richard Simon, purchased a municipal tax sale certificate, satisfied all outstanding municipal liens, and continued to timely pay the taxes and sewer assessments on the subject real property for several years thereafter. Cronecker, supra, 189 N.J. at 311. Simon then filed an action to foreclose all interests in the realty. Id. at 312. A court order set August 22, 2005, as the last day for anyone with a valid property interest to redeem the tax certificate. Ibid. Cherrystone contracted to purchase the owner's interest in the realty for $250,000 and held closing on August 22, 2005. A check satisfying the municipal obligations, as represented by the tax sale certificate, was presented to the municipal treasurer. Ibid. Simon declined to surrender the tax sale certificate and filed a motion to bar redemption of the tax certificate, prompting Cherrystone to file a motion to intervene in the foreclosure litigation. Ibid. The trial court granted Cherrystone's motion to intervene and allowed redemption. The Court granted direct certification, pursuant to Rule 2:12-2. Id. at 316.
In its analysis, the Court identified the two competing public policy goals embodied in the Tax Sale Law, which are "to enhance the tax-collecting ability of municipalities by encouraging tax sale foreclosures and . . . to protect property owners from the devastating consequences of foreclosure." Cronecker, supra, 189 N.J. at 315. To strike a balance between the interests of purchasers of tax sale certificates and those of property owners, the Court concluded, "the Legislature intended to extend judicial scrutiny to financial arrangements between third-party investors and property owners [made] during the post-foreclosure complaint period . . . . to ensure that the third-party investors do not exploit vulnerable owners by offering only nominal consideration for their property interests." Cronecker, supra, 189 N.J. at 328. The Court set forth parameters governing these types of transactions:
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. [Id. at 311.]
To protect the owner's equity interests in the property, the Court imposed a constructive trust allowing the tax certificate holder to succeed to the third-party investor's place. Ibid. If the certificate holder desired to satisfy the proposed purchase price, it could succeed to obtain the owner's contractual rights. Id. at 338. If it declined, the right would revert to Cherrystone to complete the redemption. Ibid.
Thus, two requirements must be met by a third-party investor wishing to redeem a tax sale certificate once the certificate owner has filed for foreclosure. First, the third-party investor must intervene in the foreclosure action prior to the expiration of the owner's right of redemption. Id. at 337; see also N.J.S.A. 54:5-98 (post-complaint redemption "shall be made in that cause only") and N.J.S.A. 54:5-89.1 (equitable interest holders are bound by the results of the foreclosure proceeding unless the party applies "to be made a party to the action"). Second, as determined following a court examination of all the circumstances presented, the third-party's proposed payment to the property's owners must not be insubstantial. Id. at 335. See N.J.S.A. 54:5-89.1 (third-party investor shall not have the right to redeem if he acquired the interest in the property for a nominal consideration after the filing of the complaint).
Plaintiff's arguments on appeal challenge the trial court's determination on these two issues. Our review focuses on whether defendant's application to intervene was timely and whether the proposed purchase price for the property provided more than nominal consideration. In this regard, we will not disturb the findings and conclusions of the judge if they are supported by substantial, credible evidence in the record. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974). However, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty L.P. v. Manalapan Tp. Comm., 140 N.J. 366, 378 (1995).
Plaintiff argues defendant's application to intervene, filed on May 28, was out-of-time because the last day to redeem was May 27, 2008, as fixed by the court order. The issue, as framed, was not expressly resolved by Cronecker. Nevertheless, a review of the Court's discussion, along with the statutes and relevant Court Rules addressing an owner's right to redeem, direct us to resolve this question.
Certain principles are fixed. First, a "certificate holder's interest is subordinate to the property owner's right of redemption." Cronecker, supra, 189 N.J. at 319-20 (citing N.J.S.A. 54:5-54). Second, an owner's "right to redeem shall exist and continue until barred by the judgment of the Superior Court." N.J.S.A. 54:5-86(a); see also R. 4:64-6(b) ("Redemption may be made at any time until the entry of final judgment[.]"); Landa v. Adams, 162 N.J. Super. 318, 323 (App. Div. 1978) (holding the right to redeem remains until the close of the day upon which judgment is entered). Third, an owner's right of redemption "is cut off by a judgment in foreclosure," which "vest[s] title to the property in fee simple." Town of Phillipsburg v. Block 1508, Lot 12, 380 N.J. Super. 159, 165-66 (App. Div. 2005). We additionally note the order of redemption is procedural, aiding the court's administration of the foreclosure action. It is not a defined termination of the owner's property rights.
Although it is possible for a plaintiff to file an affidavit of non-redemption, accompanied by proof of service of the order of redemption, and to request the entry of final judgment immediately following the conclusion of the time set in the order fixing the date, time and place of redemption, these events would infrequently occur one immediately after the other.
R. 4:64-1(f). More likely, a time gap results between the expiration of the time set in the order and the actual entry of a final judgment. Should a third party who contracts with an owner to buy the property be precluded from intervening during this hiatus?
As discussed in Cronecker, there are competing interests at play in this three-party controversy. After weighing the equities posed by the respective interests of the three participants -- owner, tax sale certificate holder, and third-party investor -- the balance tilts toward protecting an owner's right to the free alienation of his or her property in an effort to realize a partial equity interest. By allowing intervention up until entry of the final judgment, the property owner salvages more than nominal value for his asset and judicial scrutiny of the proposed financial arrangements between the owners and the third-party investors is assured. Cronecker, supra, 189 N.J. at 328; see N.J.S.A. 54:5-89.1.
We determine no prejudice inures to the tax certificate holder. If the motion is denied and judgment is ultimately entered, plaintiff experiences a small delay. If the court grants intervention and allows redemption, plaintiff receives the benefit of its investment, that is, full payment, along with interest and allowed expenses. After all, "'[t]he purchase of a tax sale certificate is not the equivalent of the purchase of the underlying title, there is no guarantee that a foreclosure will ultimately result in the acquisition of title.'" Cronecker, supra, 189 N.J. at 329 (quoting Cherokee Equities, L.L.C. v. Garaventa, 382 N.J. Super. 201, 209 (Ch. Div. 2005)). In weighing the various party interests, Justice Albin aptly remarked:
[I]t bears mentioning again that plaintiff tax certificate holders are commercial investors themselves, . . . . Plaintiffs knew or should have known from the start that most tax certificate investments end not in windfall profits from foreclosure but rather in high yield interest returns upon redemption . . . . Plaintiffs, moreover, controlled their own fates. Before filing the foreclosure complaints, plaintiffs could have beat Cherrystone to the punch and offered to purchase title to the property directly from the owners. Instead, plaintiffs, at their own peril, chanced that they could acquire the property through foreclosure without any further financial commitment. [Id. at 329-30 (internal citations omitted).]
Here, if defendant succeeds in realizing a profit by striking a deal acceptable to Davis and the court, no basis to interfere is presented. We determine Judge Malone did not abuse his discretion in granting defendant's motion to intervene one day following the expiration of the time set for redemption. We conclude, until a final judgment foreclosing the right of redemption is entered, the court may entertain properly filed motions by intervenors.
We also discern no basis to set aside Judge Malone's finding that the contract price defendant proposed to pay Davis provided more than nominal consideration. In analyzing whether the financing arrangement provided "meaningful monetary relief," Cronecker, supra, 189 N.J. at 335, Judge Malone stated,
Here the real benefit is somewhere between $55,000 and $75,000. Whether it's $55,000 or $75,000, there is real money that is coming to [Davis]." The completion of the foreclosure without . . . giving [Davis] the opportunity to sell would leave [Davis] with little or no benefit derived from his equity in the property."
Although the fair market value of the property was disputed (with plaintiff suggesting a value of $330,000 and defendant, approximately $210,000), it is but one fact reviewed when analyzing all of the circumstances presented. Id. at 334. An "under-all-the-circumstances approach" includes an analysis of a "number of factors" including but not limited to the amount received by the owner in comparison to the property's fair market value and to his equity in the property. The court also may give some weight to a windfall profit to be made by the third-party. A court should rightly be reluctant to strike-down a third- party financing arrangement that will provide some meaningful monetary relief to the property owner. In the end, 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.]
We conclude Judge Malone's analysis, supported by the record, properly considered all applicable circumstances in reaching his conclusion.
Finally, we determine plaintiff's request for additional discovery is unavailing. Allowing a delay to obtain more precise information on the total debts encumbering the property or other opinions of value does little to aid resolution of the dispute. The motion judge considered the range of benefits to Davis, which would be impacted by the actual amount of debt due. Even the lower range allowed a significant sum to be distributed for Davis' benefit.