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Westwood Investment Co., LLC v. Bankers Trust Co.


July 20, 2010


On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, Docket No. F-9421-06.

Per curiam.


Argued February 4, 2010

Before Judges Skillman, Fuentes and Simonelli.

Appellants-intervenors Julio and Gayle Edwards appeal from the February 27, 2009 Chancery Division order denying their motion to vacate a final tax foreclosure judgment entered on December 18, 2006, and the May 4, 2009 order denying their motion for reconsideration. We affirm.

Andrew and Dolores Boiselle owned property located at 56 Alexander Street in Newark (the property). Because the Boiselles had financed the purchase of the property with a mortgage from the Veteran's Administration (the VA), Bankers Trust Company (Bankers Trust), as trustee for American Housing Trust V (AHT V), held title to the property through a recorded deed. Deutsche Bank Trust Co. (Deutsche Bank) later succeeded Banker's Trust as trustee.

According to appellants, in 1989, they began living at the property pursuant to a lease-purchase agreement with the Boiselles. In February 2000, they obtained a mortgage from CitiFinancial Mortgage Company to purchase the property, and retained Central Title Agency (Central Title), to conduct the closing. Central Title received the mortgage proceeds on February 26, 2000, and paid a portion to Deutsche to satisfy the VA loan, and the balance to the Boiselles. Central Title received a deed transferring title from Deutsche Bank, as trustee, to the Boiselles, and a deed transferring title from the Boiselles to appellants but never recorded the deeds or the CitiFinancial mortgage.

Appellants claimed that because their rental payments to the Boiselles included property taxes, they believed that their mortgage payments did as well. They never received or inquired about a property tax bill. The taxes went unpaid after appellants purchased the property because the City of Newark tax collector continued sending the bills to Banker's Trust, who was still the property's owner of record.

On November 27, 2001, the City issued a tax sale certificate to plaintiff Westwood Investment Co., LLC (Westwood), which was recorded on April 29, 2002. On April 26, 2006, Westwood sent Banker's Trust a notice of intention to file a tax foreclosure complaint in accordance with the requirements of N.J.S.A. 54:5-97.1. On May 26, 2006, Westwood filed a notice of lis pendens and an in personam tax foreclosure complaint to foreclose the right of redemption, naming Bankers Trust, "as trustee, or its permitted successors and assigns on behalf of [AHT V,]" Stephanie Brewington, and the State of New Jersey as defendants.*fn1 After discovering that Deutsche Bank had succeeded Banker's Trust as trustee, Westwood served Deutsche Bank in accordance with the requirements of Rule 4:4-4(a) at its principal place of business in California. On September 27, 2006, Westwood filed a certification of inquiry as to Bankers Trust and Deutsche Bank.

None of the defendants filed responsive pleadings, resulting in the entry of default against them. The court entered an order setting the amount of redemption at $5,385.52, and fixing November 13, 2006 as the redemption deadline. The order also provided that if defendants failed to pay the redemption sum to the tax collector by the entry of final judgment, they would "stand absolutely debarred and foreclosed of and from all right and equity of redemption on, in and to [the property] . . . and the plaintiff shall have an absolute and indefeasible interest of inheritance in fee simple to [the property]."

Westwood served the request to enter default and order on Bankers Trust on behalf of Deutsche Bank. In response thereto, on October 26, 2006, Deutsche Bank executed a second trustee's deed to the Boiselles, which was recorded on December 14, 2006.

In accordance with instructions on the deed, the Essex County Register returned the recorded deed to Wells Fargo Home Mortgage in Minneapolis, which had apparently succeeded Deutsch Bank as trustee.

None of the defendants redeemed the property. On December 18, 2006, the court entered a final judgment of foreclosure, foreclosing any right and equity of redemption in and to the property, and granting Westwood an absolute and indefeasible fee simple in the property (the final judgment).

On June 27, 2007, Westwood sold the property to Oakhurst NJ, LLC (Oakhurst). Oakhurst, in turn, sold the property to CHBE Investments I, LLC (CHBE). On July 9, 2007, the Essex County Sheriff served a writ of possession on appellants, commanding them to vacate the property by August 16, 2007.

Appellants sought a stay of the writ, which the trial judge granted on August 9, 2007, along with the right to file a motion to vacate the final judgment. Appellants then filed a motion for an order permitting them to intervene and file an answer, and vacating the final judgment "entered herein by default for, amongst other reasons, improper service of process and failure of service of process."*fn2 By consent order, the judge granted appellants leave to intervene and contest the validity of the final judgment, and denied without prejudice their request to vacate the judgment. The court later granted Oakhurst and CHBE leave to intervene.

Appellants filed a second motion to vacate the final judgment, arguing, in part, that under the circumstances of this case, Westwood, Oakhurst and CHBE had a duty of diligent inquiry to inspect the property to identify who lived there, and that they were entitled to service of process pursuant to N.J.S.A. 54:5-54. The judge denied the motion, finding, in part, that this was an in personam action; Westwood followed the proper procedures in serving all interested parties; appellants were not entitled to service of process because they lacked a recorded interest in the property; N.J.S.A. 54:5-89.1 binds appellants to the final judgment; and Westwood, Oakhurst and CHBE had no duty of diligent inquiry to inspect the property.

Appellants filed a motion for reconsideration, citing additional case law purportedly supporting their claim that Westwood, Oakhurst and CHBE had a duty of diligent inquiry to inspect the property, and again arguing their right to service of process. The judge granted reconsideration and denied the motion, concluding, in relevant part, that the purchaser of [a tax] certificate follows a special designated procedure set forth by rule and statute. And they have a right to rely that if they follow what the rule and statute [say] to the letter, they should be protected. And as that rule and statute stands presently and has stood for quite [a while], there is absolutely no requirement that the person knock on the door or visit the property.

. . . [Westwood] followed the proper procedure which . . . we shouldn't just disregard . . . cavalierly the 60 year title search . . . [a]nd the law says that people must be noticed upon what is uncovered from that title search. Anybody who has a recorded or filed interest.

. . . And because [appellants] weren't in the record title they didn't get named and they did not get served, that much is true. And I find nothing anywhere which would require the certificate holder to do more.

The judge also concluded that there was no duty of diligent inquiry to inspect the property. This appeal followed.

We will not disturb a trial court's decision on a motion to vacate a final judgment absent an abuse of discretion. Housing Auth. of Morristown v. Little, 135 N.J. 278, 283 (1994). We discern no abuse of discretion here.

Property owners have a duty to make sure that their property taxes are paid.

The validity of any tax or assessment, or the time at which it shall be payable, shall not be affected by the failure of a taxpayer to receive a tax bill, but every taxpayer is put on notice to ascertain from the proper official of the taxing district the amount which may be due for taxes or assessments against him or his property. [N.J.S.A. 54:4-64(a)(3).]

The Tax Sale Law, N.J.S.A. 54:5-1 to -137, provides a mechanism for individuals or entities to purchase tax liens from municipalities and initiate foreclosure actions against property owners who are delinquent in paying their property taxes. The foreclosure process begins when a property owner fails to pay the property taxes, as the unpaid balance becomes a municipal lien on the property. N.J.S.A. 54:5-6. "When unpaid taxes or any municipal lien . . . remains in arrears on the 11th day of the eleventh month of the fiscal year when the taxes or lien became in arrears, the collector . . . shall enforce the lien by selling the property[.]" N.J.S.A. 54:5-19. Upon completion of the sale, a certificate of tax sale is issued to the purchaser. N.J.S.A. 54:5-46.

A tax foreclosure sale is subject to redemption. N.J.S.A. 54:5-32. If the certificate is not redeemed within two years from the date of the tax sale, the certificate holder can file an in personam foreclosure action to bar the right of redemption. N.J.S.A. 54:5-86(a). Prior thereto, the certificate holder must, through a "title search of the public record," identify "any lienholder or other persons and entities with an interest in the property that is subject to foreclosure[,]" who then must be named as defendants in the action and served with the foreclosure complaint. R. 4:64-1(a).

If the defendants fail to plead or otherwise defend, Rule 4:64-1(c), "the court . . . shall enter an order fixing the amount, time and place for redemption upon proof establishing the amount due." R. 4:64-1(f). The order must then be served on each defendant. Ibid. Thereafter, "[t]he court, on notice to all appearing parties including parties whose answers have been stricken, may enter final judgment upon proof of service of the order of redemption . . . and the filing by plaintiff of an affidavit of non-redemption." Ibid. There is no dispute that Westwood complied with all statutory and rule requirements.

Owners or occupants of the property who may have the right to redeem must exercise that right by paying the delinquent taxes before the time to redeem has been cut off. N.J.S.A. 54:5-54. The right to redeem continues "until barred by the judgment of the Superior Court." N.J.S.A. 54:5-86(a). However, "the express policy of the [Tax Sale Law] is that it be liberally constructed so as to bar the right of redemption, not preserve it, the goal being that marketable titles to property be secured." Malone v. Midlantic Bank, N.A., 334 N.J. Super. 238, 250 (Ch. Div. 1999) (citing N.J.S.A. 54:5-85), aff'd o.b., 334 N.J. Super. 236 (App. Div. 2000). "Since the redemption provisions of the Tax Sale Law must be viewed with that goal in mind, N.J.S.A. 54:5-54 should not be read to support a right of redemption in" occupants who have no enforceable lease. Id. at 250. "This is particularly true, when . . . the owner has forfeited his interest in the property" due to his failure to record his deed prior to the entry of a final tax foreclosure judgment. Ibid.

The judgment entered is final, "and no application shall be entertained to reopen the judgment after three months from the date thereof, and then only upon the grounds of lack of jurisdiction or fraud in the conduct of the suit." N.J.S.A. 54:5-87; see also N.J.S.A. 54:5-104.67.

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, by or through any conveyance, mortgage, assignment, lien or any instrument which, by any provision of law, could be recorded, registered, entered or filed in any public office in this State, and which shall not be so recorded, registered, entered or filed at the time of the filing of the complaint in such action shall be bound by the proceedings in the action so far as such property is concerned, in the same manner as if he had been made a party to and appeared in such action, and the judgment therein had been made against him as one of the defendants therein. [N.J.S.A. 54:5-89.1 (emphasis added).]

The judgment vests in the plaintiff "an absolute and indefeasible estate of inheritance in fee simple in the land[.]" N.J.S.A. 54:5-104.64.

Appellants do not contend that Westwood engaged in fraud or failed to comply with the statutes and rules governing tax foreclosure sales. Rather, they contend that the court lacked jurisdiction because they were not served with process. Appellants argue that N.J.S.A. 54:5-54 affords them the right to redeem and to service of process because they are occupants and equitable owners of the property by virtue of the deed from the Boiselles. Appellants also argue that Westwood, Oakhurst and CHBE had a duty of diligent inquiry to inspect the property to discover appellants' interest therein, and that they were denied due process.

We agree that appellants occupied the property as its owners pursuant to the deed from the Boiselles, and thus had a right to redeem. However, because they had no recorded deed, they were not entitled to service of process, and they are bound by the final judgment. In an in personam tax foreclosure action, Rule 4:64-1(a) only requires the certificate holder to search the public records to ascertain the identity of persons with an interest in the property. This is what the Legislature intended in the TSL as well, as N.J.S.A. 5:5-89.1 binds to a final tax foreclosure judgment all persons claiming an interest in the foreclosed property who had an unrecorded deed. There is no authority requiring the certificate holder to inspect the property, or do anything else, to ascertain the identity of persons claiming an interest thereto.

As for Oakhurst and CHBE, prior to purchasing the property they had a duty to "ascertain, in advance," who was in possession of it. Michalski v. United States, 49 N.J. Super. 104, 108 (Ch. Div. 1958). This duty has been applied to purchasers who acquire property from one who has gained title through a tax sale foreclosure. I.E.'s, L.L.C. v. Simmons, 392 N.J. Super. 520, 535 (Law Div. 2006). Such a purchaser "has a duty to make reasonable and diligent inquiry of the rights to the property by those in possession." Ibid.

Although prior to their purchases Oakhurst and CHBE had a duty to make a reasonable and diligent inquiry to ascertain who was in possession of the property, such inquiry would not have changed the result. By virtue of the final tax foreclosure judgment, at the time Oakhurst and CHBE purchased the property, appellants possessed no lawful interest in it.


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