Foreclosure Defense Law Blog

Court Permits Holder of Tax Certificate and Mortgage Interest to Intervene

In an unpublished decision, the Appellate Division of the Superior Court of New Jersey found that an entity may purchase a mortgage and thereafter, intervene in a foreclosure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.

Comments/Questions: ljm@gdnlaw.com

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New Jersey Appellate Court Holds that Foreclosure May Proceed Based on Defendant's Failure to Timely Respond

New Jersey Caselaw:  The New Jersey Appellate Division recently upheld the foreclosure of real property located in Phillipsburg, New Jersey.  The foreclosure was brought based on the owner's failure to pay property taxes.  The total unpaid taxes amounted to $3,281.04.  The City had placed a lien on the property, and when they remained unpaid, the City then held a tax sale to recoup the amount owed.  Thereafter, the tax sale certificate was sold, and a future purchaser of that certificate proceeded to commence foreclosure action to collect on the certificate.  Notably, the foreclosure action was commenced almost ten years after the accrual of the taxes for which the certificate was based. An order was entered, and the defendant then arrived to try to pay the balance at the last hour.  However, when he did so, he tried to pay with checks that were stale and a certified check that was in an improper amount. 

Over a year later the property was foreclosed upon and title was transferred pursuant to a default judgment.  The defendant tried to vacate that judgment even though (a) certain time periods to reconsider part of the matter had passed and (b) there did not appear to be a good basis to reconsider the balance of the claim. Therefore, the Court refused to vacate the judgment, and the foreclosure stood.  This decision appears to be based primarily on the fact that the defendant was well aware of the action and had proper opportunity to address it prior to the judgment being entered, and prior to the property being sold to a new bona fide purchaser.  The lesson here is clear:  you cannot delay or otherwise ignore a foreclosure proceeding.  If you do so, you can waive your rights.  Once that has occurred, you may not be able to go back and "fix it."  It is critical that you respond quickly and properly to a threatened foreclosure action, and to properly answer any court documents.

Comments/Questions: ljm@gdnlaw.com Please visit our website at www.gdnlaw.com and our other blogs at www.nissenbaumlawblog.com; www.foreclosuredefenselawblog.com; www.saleofbusinesslawblog.com; www.internetdefamationlawblog.com; www.constructionlawinfoblog.com; www.filmproductionlawblog.com; www.internetlawinfoblog.com; and www.njbusinesslawblog.com