In an unpublished decision, the Appellate Division of the Superior Court of New Jersey found that an entity may purchase a mortgage and thereafter, intervene in a foreclosure action. The property that was the subject of the action was subject to a mortgage initially held by David and Anita Dorffman. In addition, it was subject to two separate tax liens that had been acquired through the purchase of tax sale certificates. Generally speaking, tax sale certificates allow a private party to purchase the right to step into the shoes of the government and foreclose on real estate for unpaid taxes.
The first certificate had been acquired by Gladiator Investment Partnership-2, LLC (Gladiator) while the second had been acquired by the plaintiff in the matter, American Tax Funding (ATF). Gladiator filed a tax sale certificate foreclosure action based upon outstanding property taxes. Prior to the issuance of a final judgment in Gladiator’s action, however, the mortgage on the property was assigned to Cherrystone Bay, LLC (Cherrystone). Once it had acquired the mortgage, Cherrystone moved to intervene in Gladiator’s tax foreclosure action and redeem its tax lien. The lower court granted Cherrystone’s motion, reasoning that the $40,000 it had paid to acquire the mortgage exceeded nominal consideration. However, rather than redeem Gladiator’s tax lien, Cherrystone purchased an assignment of the lien from Gladiator. Accordingly, Cherrystone then held both the mortgage and the first tax certificate on the property.
In the meantime, ATF had initiated its own foreclosure action on its tax sale certificate. At the time ATF filed its action, Cherrystone held neither the mortgage nor the tax sale certificate it eventually purchased from Gladiator, and therefore was not named as a defendant in the action. Thus, after an order was entered in ATF’s action declaring the amount required to redeem ATF’s lien, Cherrystone moved to intervene and to be permitted to redeem the lien. Again the trial court granted Cherrystone’s motion, reasoning that it had paid more than nominal consideration for the redeemable interests it had acquired in the property.
The Appellate Division upheld the trial court’s ruling. In support of its decision, the Court cited to a previous case in which a court had used an “under-all-the-circumstances” approach to determine whether a litigant had paid more than nominal consideration. The Appellate Division noted several factors that should be considered in applying such an approach, including: (1) the amount paid for the property as compared to the market price at the time; (2) any windfall profit realized by a third party; and (3) the prior existence of financing arrangements. Taking the same approach, the Court concluded that Cherrystone had timely intervened in the matter and that it had a redeemable interest in the property for which it had paid more than nominal consideration.
In light of this decision, third party investors should note that courts will likely allow them to intervene in a foreclosure action, as long as they do so in a timely manner and have paid more than nominal consideration for their interest in the property.
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