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Barnes v. Molendyk


November 23, 2009


On appeal from Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. F-23547-07.

Per curiam.


Argued October 14, 2009

Before Judges Carchman and Ashrafi.

In this tax foreclosure case, a prospective third-party investor appeals denial of its application to intervene and to redeem the tax sale certificate. The primary issue is whether the tax lien holder's settlement with a prior third-party investor effectively reinstated a judgment of foreclosure that had previously been entered, and thus, prevented any other third-party investor from attempting to intervene. We conclude that the trial court did not err in ruling that the matter had been resolved through the settlement. Therefore, we affirm the trial court's order denying intervention to the new third-party investor.

The property subject to foreclosure is located at 86 Hinchman Avenue in the Township of Wayne and was owned by Johanna Molendyk. Upon her death, her son, William Molendyk, became the executor of her estate. William allegedly did nothing beyond filing an initial application to probate the estate. He died in January 2008, and Johanna's daughter, Sophia Molendyk, became the substitute executrix of Johanna's estate.

In June 2002, plaintiff Helen Barnes, Trustee for Bergen Eastern Pension Trust, purchased a tax sale certificate at a public sale for $5,790.18 of unpaid taxes and interest for the subject property. Plaintiff continued paying property taxes for the next several years. In May 2007, plaintiff sent a notice of intent to foreclose on the property to William Molendyk, indicating that $52,680.87 was then due to plaintiff to redeem the tax sale certificate. In September 2007, plaintiff filed and served a foreclosure complaint in the Chancery Division under N.J.S.A. 54:5-86, naming as defendants William, Maria, and Sophia Molendyk, the estate of Johanna Molendyk, and the State of New Jersey. On February 14, 2008, the court entered an order setting a deadline of March 31, 2008, for redemption of the tax sale certificate, and $71,959.96 as the redemption amount.

In mid-March 2008, a third-party investor, Cherrystone Bay, LLC, attempted to contact a representative of Johanna Molendyk's estate to discuss redeeming the tax sale certificate and purchasing the property. On March 30, 2008, Sophia Molendyk entered into a contract on behalf of the estate for sale of the property to Cherrystone for $125,000.

The next day, March 31, the attorney for Cherrystone, Anthony Velasquez, filed an application with the court for an order to show cause seeking to stay entry of judgment, to intervene in the foreclosure action, and to redeem the tax sale certificate. Cherrystone's application was served upon plaintiff's attorney by hand delivery late the same day, and attorney Velasquez also sent a letter to the Foreclosure Unit of the Superior Court Clerk's Office in Trenton notifying it of Cherrystone's application to intervene. Although the Clerk's Office received the letter on April 1, the Foreclosure Unit entered a judgment of foreclosure on behalf of plaintiff on that date, apparently unaware that the case was no longer uncontested.

The court heard argument on Cherrystone's application on April 3 and entered an order to show cause with temporary restraints dated April 10, 2008. Included in the April 10 order was that "[p]ending the return date of this Order, by way of temporary restraint it is directed that Final Judgment not be entered against the Defendants in this matter until the resolution of the current Order to Show Cause application." (Emphasis added). The record on appeal does not reveal whether the foreclosure judgment entered by the Clerk's Office on April 1 was vacated or not.

After hearing argument on Cherrystone's application to intervene, the court entered an order dated June 11, 2008, which permitted Cherrystone to intervene, found that the purchase price of $125,000 was "above 'nominal consideration' under applicable law" and set a deadline for redemption of the property using the following language:

If no appeal is taken, and if no redemption is tendered after the expiration of two (2) weeks of the expiration of such appeal period, then the Plaintiff shall be permitted to move for entry of final judgment, in accordance with all other applicable laws governing this foreclosure action. [(Emphasis added).]

Plaintiff tax certificate holder filed a notice of appeal from the order of June 11, 2008.

A short time later, plaintiff and Cherrystone reached a settlement agreement, which they submitted to the court in the form of a consent order. The court executed the consent order on August 6, 2008. In the settlement, plaintiff agreed to withdraw its opposition to Cherrystone's intervention and redemption of the property, provided that Cherrystone was required to purchase the property within forty-five days in accordance with terms of the contract of sale previously approved by the court, and to pay the redemption amount to the tax collector, as well as an additional $3,500 directly to plaintiff within that same forty-five days. Paragraph five of the consent order stated:

In the event that Cherrystone Bay, LLC fails to redeem within forty-five (45) days of its receipt of the fully executed Consent Order, then it shall lose its right to redeem and the Final Judgment previously entered by the court shall remain in full force and effect. Cherrystone Bay, LLC shall have no further rights to redeem or intervene in this matter.

[(Emphasis added).]

On approximately the forty-fifth day after the consent order, Cherrystone attempted to redeem the property using checks issued by two remitters that it identified as lenders. Plaintiff informed the tax collector that it would not release the tax sale certificate in exchange for funds provided by the remitters, and the tax collector rejected Cherrystone's attempted redemption. Cherrystone then decided to relinquish its contract right to purchase the property, stating later that it could not afford to litigate the matter further.

On October 17, 2008, Cherrystone and Sophia Molendyk signed a release of their rights and claims under their contract of sale. On the same day, Sophia Molendyk signed a contract to sell the property to appellant Leland Avenue Associates, LLC. On October 21, 2008, Leland, represented by Velasquez, the same attorney who had previously represented Cherrystone, filed an application to intervene in the foreclosure action and to redeem the tax sale certificate.

In support of the application, the managing member of Leland certified that he learned of the availability of the property through the principal of Cherrystone, who told him that the owner would only agree to release Cherrystone from its contract if a new buyer could be found. He further certified that Leland's business was not associated with Cherrystone and that Leland sought to purchase the property for $130,000.

The court entered an order to show cause with temporary restraints on October 28, 2008, containing much of the same language as Cherrystone's April 10 order to show cause, including the language quoted earlier that "[p]ending the return date of this Order to Show Cause, by way of temporary restraint it is directed that Final Judgment not be entered against the Defendants in this matter until resolution of the current Order to Show Cause application." (Emphasis added).

On January 12, 2009, the court placed an oral decision on the record denying Leland's application to intervene and to redeem the tax sale certificate. The court entered an order to the same effect on January 14, 2009. Leland appeals from that order.

In a trilogy of opinions issued together almost three years ago, the Supreme Court described the purposes and problems associated with the Tax Sale Law, N.J.S.A. 54:5-1 to -137. See Simon v. Cronecker, 189 N.J. 304, 318-19, 323-26, 330-31 (2007); Simon v. Rando, 189 N.J. 339, 343-45 (2007); Malinowski v. Jacobs, 189 N.J. 345, 350 (2007); see also Varsolona v. Breen Capital Servs. Corp., 180 N.J. 605, 621-22 (2004) (purposes of Tax Sale Law are to return delinquent properties to paying taX rolls and to protect property owners from unfair treatment by tax certificate holders). In Cronecker, supra, 189 N.J. at 336-37, the Court held that a third-party investor who seeks to redeem and purchase the property after a foreclosure complaint has been filed must intervene in the foreclosure action and present its proposal to the court. The court's role is to protect distressed property owners from exploitation by investors. Cronecker, supra, 189 N.J. at 320; Phoenix Funding, Inc. v. Krute, 403 N.J. Super. 261, 269 (App. Div. 2008).

In this case, the trial court followed the dictates of Cronecker when it examined Cherrystone's original application to intervene and purchase the property. It concluded that the purchase price provided more than nominal consideration to the owner of the property, as required by N.J.S.A. 54:5-89.1. It permitted Cherrystone to intervene and redeem the tax sale certificate.

Cherrystone and plaintiff then presented a consent order indicating terms of a settlement. The court entered the consent order, which included a specific deadline for Cherrystone's redemption and purchase of the property and a specific consequence if the deadline was not met. That deadline had passed by about thirty days at the time that Leland filed its application to intervene. Plaintiff objected, contending that the application came after entry of final judgment of foreclosure and was thus untimely. See N.J.S.A. 54:5-86a, -87; Del Vecchio v. Hemberger, 388 N.J. Super. 179, 183 (App. Div. 2006); Town of Phillipsburg v. Block 1508, Lot 12, 380 N.J. Super. 159, 163 (App. Div. 2005).

The trial court agreed with plaintiff and denied Leland's application, stating:

While this Court finds that the contract that Leland has offered to the property owner is more than nominal consideration, this Court gave its imprimatur by signing a consent order entered into by the parties that conveyed an interest solely to Cherrystone Bay - not to an assignee, not to a third party negotiating an agreement with Cherrystone Bay, not with Leland.

Had Cherrystone Bay wished to protect its ability to assign its interest in this very heavily contested case, they should have put such a provision in that consent order.

Leland argues that the judge erred in stating that Cherrystone had assigned its interest to Leland. It insists there was no assignment but an independent contract between Leland and the owner's estate at a different purchase price. Assuming, however, that there was no assignment of rights or interests, the court could still view Leland as a successor to Cherrystone in that it was an alternative third-party investor procured for the sale by Cherrystone to free itself of its own obligations to the owner. More to the point, whether there was an assignment or not is not the determinative issue. Rather, the issue is whether a final judgment of foreclosure was in effect when Leland attempted to intervene in October 2008.

The language emphasized from the several orders creates uncertainty about the status of a final judgment. The order to show cause of April 10, 2008, directed that no final judgment be entered, but it did not expressly direct that the judgment entered by the Foreclosure Unit on April 1, 2008, be vacated. The order of June 11, 2008, implied that the judgment had been vacated when it provided that, if Cherrystone failed to redeem, "the Plaintiff shall be permitted to move for entry of final judgment." The consent order of August 6, 2008, however, again reverted to an assumption that the April 1 judgment had not been vacated. It said that if Cherrystone failed to redeem and purchase the property within forty-five days, "the Final Judgment previously entered by the court shall remain in full force and effect." Finally, Leland's order to show cause dated October 28, 2008, again directed that a final judgment not be entered.

The trial court did not address the question of whether a judgment was in effect as a result of the August 6 consent order. But when Leland moved to intervene, the court seems to have implicitly viewed the consent order as reinstating the judgment of foreclosure in favor of plaintiff and finally resolving the matter. It referred to the court's role in executing the consent order as its "imprimatur" on the transaction among Cherrystone, plaintiff, and the property owner. That reference implies that the court viewed the consent order to be a final resolution of the foreclosure action.

Leland argues that a final judgment could not be reinstated by the agreement of only two parties to the action, plaintiff and Cherrystone. It argues that other defendants, in particular, Sophia Molendyk, would have to receive notice of the consent order and also must consent to reinstatement of the final judgment, which was effective against all defendants. But no other party objected to entry of the consent order, or appeared in the trial court or on appeal to argue that the other defendants' rights were infringed. If other defendants have been adversely affected by the court's ruling, Leland does not have standing to argue on their behalf.

To intervene in an action under Rule 4:33-1, a party must make timely application. Meehan v. K.D. Partners, L.P., 317 N.J. Super. 563, 568 (App. Div. 1998). Leland's application to intervene was filed about seventy-five days after entry of the consent order of August 6, 2008. Because that order provided that the final judgment previously entered would remain in full force and effect if Cherrystone did not redeem within forty-five days, we conclude that the trial court did not err in ruling that Leland's application was untimely.



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