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Wachovia Cust. for Plymouth Park Tax Service, L.L.C. v. Pitts


June 24, 2010


On appeal from the Superior Court of New Jersey, Chancery Division, Camden County, Docket No. F-1128-08.

Per curiam.


Argued April 26, 2010

Before Judges Lisa and Baxter.

This appeal implicates the right of a third-party investor to intervene in a tax foreclosure action, in accordance with the principles set forth in Simon v. Cronecker, 189 N.J. 304 (2007).

Plaintiff, Wachovia Custodian for Plymouth Park Tax Service, L.L.C. (Wachovia) purchased a tax sale certificate for unpaid taxes on a property in Stratford owned by defendants Thomas and Charles Pitts (collectively referred to as "Pitts"). Wachovia initiated the tax foreclosure action. Prior to the entry of a judgment of foreclosure, Unipro Property Group, L.L.C. (Unipro) entered into a contract with Pitts for the sale of the property to Unipro. Unipro then moved to intervene in the foreclosure action and to be allowed to redeem the tax sale certificate.

By order of July 16, 2008, Judge Colalillo granted the intervention motion and authorized redemption under certain conditions as set forth in the order. The court retained jurisdiction to monitor compliance with the conditions. By order of May 13, 2009, the judge granted Wachovia's motion to dismiss the action. That order also contained a provision for disposition of the proceeds of the sale of the property if such sale should occur during the pendency of the anticipated appeal.

Wachovia appeals from those orders. It argues that Unipro failed to meet the statutory requirements to be permitted to redeem, that Unipro's intervention motion sought an advisory opinion, and that Unipro failed to provide proof that it paid more than nominal consideration as required by Cronecker. We reject these arguments.

Wachovia purchased the tax sale certificate for $3338.11 on June 22, 2005. It began the foreclosure action on January 8, 2008. In the interim, it had paid property taxes as they became due, and the amount required for redemption as of April 28, 2008 was approximately $12,000.

On April 1, 2008, Unipro entered into an agreement with Pitts, by which Unipro would pay all outstanding liens and judgments affecting title to the property, title would then transfer to Unipro, and Unipro would list the property for sale with an independent realtor for fair market value. Upon selling the property, Unipro would be reimbursed for its expenses in clearing title, after which 35% of the remaining proceeds would go to Unipro and 65% would go to Pitts. Until the ultimate sale was consummated, Pitts would be permitted to remain in the home rent-free. The agreement further provided that if Unipro was not successful in its motion to intervene, the agreement would be null and void.

In connection with the intervention motion, Unipro provided competent evidence from which the court could estimate the amount that ultimately would be paid to Pitts. Unipro estimated the costs of clearing title at approximately $26,000. It provided evidence of the fair market value of the property, with a suggested market price of between $170,000 and $190,000. The assessed value was $87,400. It proposed to list the property with an unrelated local real estate broker at a commission not to exceed 6%. It agreed to pay certain expenses, including the realty transfer fee. And, as we have stated, Pitts was given the right to remain in the property rent-free until it was sold.

Based upon this information, Judge Colalillo concluded that Unipro had offered Pitts more than nominal consideration. She also found that the contract gave Unipro a legal right to the property and rendered it a party entitled to intervene and redeem. The July 16, 2008 order required that the property be immediately listed for sale at a price recommended by a local real estate agent representing fair market value, that it could not be sold to any party connected with Unipro, that Unipro's costs of clearing title would be capped at $26,000, that the realtor's commission could not exceed 6%, and that the court would retain "continuing jurisdiction over the subject contract until full compliance with all of the terms of said contract."

On February 18, 2009, Unipro informed Judge Colalillo that it had recently tendered the redemption amount to the tax collector and had listed the property for sale for $129,900 through Weichert Realtors, which would receive a 5.5% commission. On March 16, 2009, Wachovia apparently refused to surrender the certificate to Unipro and instead filed a motion to dismiss its own foreclosure action and to stay the matter pending appeal. Wachovia wished to appeal the intervention order, but could not do so unless a final order was entered. This resulted in the May 13, 2009 order dismissing the action, ordering Wachovia to immediately surrender the certificate to Unipro, and (if Wachovia timely appealed) directing Unipro to deposit its share of the proceeds from the sale of the property with the court pending the outcome of the appeal. If no appeal was filed, Unipro would not be required to deposit its share with the court, but could retain it. Whether or not an appeal was filed, the 65% of the net proceeds due to Pitts would be paid to Pitts.

On June 2, 2009, the tax sale certificate was fully paid and surrendered to Unipro. On June 19, 2009, Unipro sold the house for $120,000. The realtor received a commission of $6325. Unipro's costs to clear the title amounted to $21,813. After all other costs of sale, the net proceeds were $85,950.82. Unipro disbursed $60,000, representing nearly 70% of the net proceeds, to Pitts and deposited the remaining $25,950.82, representing its share, with the court.

Wachovia argues that Unipro, as a mere contract purchaser, did not obtain a legal interest in the property as required by N.J.S.A. 54:5-54 or N.J.S.A. 54:5-89.1, and it was thus not a party that was entitled to intervene in the foreclosure action and redeem the tax sale certificate. We do not agree.

The procedures and conditions under which a third-party investor may intervene and redeem a tax sale certificate were laid down by the Supreme Court in Cronecker. We first note that N.J.S.A. 54:5-54 pertains to the right of redemption by the owner or person having an interest in the property. It does not pertain to the rights of a third-party investor to intervene in a foreclosure action and redeem. Further, N.J.S.A. 54:5-54 begins with the words "[e]xcept as hereinafter provided." This section is not controlling.

The pivotal section in the Tax Sale Law, N.J.S.A. 54:5-1 to -137, is N.J.S.A. 54:5-89.1, which includes a provision dealing with the right of intervention. It prohibits such intervention in the tax foreclosure action "whenever it shall appear that [the third-party investor] has acquired such interest in the lands for a nominal consideration after the filing of the [tax foreclosure] complaint."

In Cronecker, the Court held that a third-party investor may redeem a tax sale certificate after the filing of a foreclosure action, as long as the investor timely intervenes in the action and pays the property owner more than nominal consideration for the property. Cronecker, supra, 189 N.J. at 311. In Cronecker, the plaintiffs, holders of the tax sale certificate, sought to foreclose on the properties, but before a judgment of foreclosure, Cherrystone Bay, L.L.C. (Cherrystone), contracted to purchase the property from the owners, and closing took place prior to the date set for redemption. Id. at 312, 314. As the new owner of the properties, Cherrystone sought to redeem directly with the tax collector. Ibid. Plaintiffs moved to bar the redemption, and Cherrystone, in response, for the first time moved to intervene in the foreclosure action. Ibid.

The Court briefly explained how the interaction among the purchaser of a tax certificate and the intervenor produces societal benefits by allowing tax revenue to flow to the municipality and economic benefits to the distressed property owner:

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 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. [Id. at 310-11 (citation omitted).]

The Court further explained that the Tax Sale Law "is not [meant] to bar third-party investors from helping property owners in desperate need of financial assistance, but rather to ensure that the third-party investors do not exploit vulnerable owners by offering only nominal consideration for their property interests." Id. at 328.

The Court noted that the holder of the tax certificate knew or should have known when it purchased it that most of these investments end not in windfall profits from foreclosure but rather in high yield interest returns upon redemption. Id. at 329. More importantly, the certificate holders controlled their own fate. Instead of filing the foreclosure action, they "could have beat Cherrystone to the punch and offered to purchase title to the property directly from the owners." Id. at 330. Instead, the certificate holders, "at their own peril, chanced that they could acquire the property through foreclosure without any further financial commitment." Ibid. Accordingly, third-party investors are permitted to seek to intervene in a foreclosure action. Id. at 331. Indeed, if the third-party investor wants to redeem the certificate it is required to intervene in the foreclosure action to permit judicial oversight of the consideration offered. Id. at 336. Because Cherrystone failed to do so, the Supreme Court ruled against it. Id. at 336-38.

Wachovia argues that Unipro was improperly permitted to intervene because it was merely the party to a contract with the property owner, but it did not have a "legal interest" in the property. Wachovia points out that in the transactions in Cronecker, the intervenor had actually closed on the property rather than merely holding a contract. See Cronecker, supra, 189 N.J. at 312, 314. This is true, but it is not dispositive.

Throughout the Cronecker opinion, the Court repeatedly referred to the need for an intervenor to "offer" more than nominal value as a prerequisite to the right to intervene. Although under the facts presented in Cronecker, the intervenor had closed on the title, the Court, in its analysis, considered the rights of a contract purchaser to be sufficient. The Court explained the rationale for requiring intervention by addressing a situation where "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 [the Tax Sale Law]." Id. at 336 (emphasis added). Under these circumstances the third party investor not only is permitted to intervene, it must intervene:

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. [Ibid. (emphasis added) (citing Feighner v. Sauter, 259 N.J. Super. 583, 592 (App. Div. 1992) (noting that "upon execution of contract of sale, an equitable transfer occurs")).]

Thus, contrary to Wachovia's argument, the Court clearly contemplated that a third-party investor who contracts to purchase land but who has not yet obtained title would be permitted, indeed would be compelled, to intervene in the foreclosure action as the first step toward redemption of the tax certificate.

Additional passages from Cronecker indicate that the third-party investor need not have actually closed on the property, but merely have offered more than nominal consideration for the property, i.e. entered into a fair contract for the purchase of the land. In such circumstances, the investor should intervene to permit judicial oversight to ensure that more than nominal consideration was offered. See Cronecker, supra, 189 N.J. at 337 ("On the other hand, if 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.") (emphasis added); Id. at 338 ("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.") (emphasis added); see also id. at 320 ("[T]he 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.") (emphasis added).

We are satisfied from the expansive discussion in Cronecker that Unipro's status as a contract purchaser provided a sufficient basis for intervention and redemption. We reject Wachovia's argument that because the specific facts in Cronecker did not deal with a mere contract purchaser, the Court's discussion in that regard was nothing more than dicta, which we should disregard. We are not free to do so. Dicta in a Supreme Court opinion which is carefully considered, necessary to the Court's decision, or directly involved with the central issue in the case is binding on us. Loigman v. Twp. Comm. of Middletown, 409 N.J. Super. 13, 22 (App. Div.), certif. denied, 200 N.J. 503 (2009). The Court's discussion in Cronecker pertaining to offers of more than nominal value made by contract purchasers as being sufficient to obtain intervenor status was pervasive, directly involved with the central issue in the case, carefully considered, and important to the ultimate decision in the case. That discussion is binding on this court, and it defeats Wachovia's argument that Unipro lacked standing to intervene and redeem.

We next consider Wachovia's argument that by entering into a purchase agreement contingent on the court's granting its motion to intervene, Unipro impermissibly sought an advisory opinion as to whether it had the right to intervene. This argument lacks merit.

"An advisory opinion is a non-binding statement by a court or an administrator interpreting the law on a matter submitted for that purpose." In re Determination by Dir. of Div. of Alcoholic Beverage Control, 392 N.J. Super. 577, 580 (App. Div. 2007). Although there is no express "cases and controversies" requirement in the New Jersey Constitution, as there is in the federal constitution, U.S. Const. art. III, § 2, cl. 1, our courts "will not render advisory opinions or function in the abstract." Crescent Park Tenants Ass'n v. Realty Equities Corp., 58 N.J. 98, 107 (1971). To the contrary, our courts "have appropriately confined litigation to those situations where the litigant's concern with the subject matter evidenced a sufficient stake and real adverseness." Ibid.

Wachovia has provided no legal argument as to how the judge's decision constituted an advisory opinion under these definitions. It is essential for a party on appeal to present an adequate legal argument. State v. Hild, 148 N.J. Super. 294, 296 (App. Div. 1977). The judge's decision was obviously binding on both Wachovia and Unipro and was therefore not a "non-binding statement." Further, both litigants' concern with the subject matter "evidenced a sufficient stake and real adverseness." The "stake" is clear: if Wachovia prevailed it could proceed with the foreclosure and acquire title to the property; if Unipro prevailed it could redeem the certificate and sell the house. The "real adverseness" of the parties is evident and requires no further elaboration.

The judge's decision did not constitute an advisory opinion. Indeed, as we have explained, under these circumstances our Supreme Court required the judge to provide this sort of judicial oversight to ensure the adequacy of the consideration offered by Unipro to the property owner. Cronecker, supra, 189 N.J. at 336-38. There is no basis for reversal on this point.

Finally, we reject Wachovia's argument that because Unipro's contract to purchase the property was contingent on the court granting its motion to intervene, Unipro "failed to provide the trial court with sufficient proof at the time of its application to intervene that its contract would yield more than nominal consideration for the property owners." As we have previously set forth, this argument is belied by the record. Unipro provided sufficient information to the court at the time of the intervention motion to establish that Pitts would receive substantial consideration. In doing so, it complied with the Cronecker precepts.

In Cronecker, the Court held that more than "nominal consideration," N.J.S.A. 54:5-89.1, meant 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. In making this determination a court may consider numerous 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." Ibid.

Although the contract in this case did not contain a specific purchase price, the judge had before her at the time of the intervention motion a realtor's opinion that the suggested market price of the property was $170,000 to $190,000. The judge also knew that Unipro's costs to satisfy liens and taxes on the property to clear the title would be approximately $26,000. Thus, sufficient evidence established that Pitts had very substantial equity in the property. After a standard realtor's commission not to exceed 6%, the remaining net proceeds would be split with 65% going to the property owner, and Unipro retaining only 35%. This information was sufficient to support Judge Colalillo's determination that more than nominal consideration had been offered by Unipro, despite there being no set purchase price.

The judge tailored her July 16, 2008 order to these facts, all of which were for the protection of the property owner. The court retained jurisdiction to monitor compliance. This is the kind of supervision by the Chancery court contemplated by Cronecker to assure the protection of the respective interests of all parties. Judge Colalillo acted well within her discretion in structuring the order in this manner. The sale was achieved in a manner which resulted in payment to the property owner of nearly 70% of the net proceeds, a sum of $60,000. In light of the Cronecker principles, this sum was clearly "not insubstantial under all the circumstances" and "not unconscionable." Ibid.



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