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Arianna Financial Company, LLC v. Lopez

A-1448-07T1 (N.J. Super. App. Div. 2008) (Unpublished)

FORECLOSURE; TAX SALES; NOTICES — Where a certificate holder serves a notice of redemption by publication without having properly investigated whether personal service can be made, an agreement between a investor and the property owner to redeem the property unsavory may be excused because the certificate holder did not have “clean hands” when publishing the redemption notice.

A tax certificate for unpaid municipal taxes was sold on a property. The property owner was ill and was living out-of-state with his daughter. The owner also had a son who occasionally collected the mail and mowed the lawn. About three and a half years after the certificate was sold, the holder of the tax certificate brought a foreclosure action on the property and obtained a default judgment. The amount, place, and time for the property’s redemption were set. According to the certificate holder, a redemption notice was published because it was believed that the property owner was deceased.

An investor sought to intervene. He contacted the owner’s two children. The owner’s children agreed to sell the property to the investor who recommended an attorney to them to handle the property sale. The attorney moved to have the daughter appointed as guardian ad litem for her father (the property owner) and to vacate the default judgment obtained by the certificate holder. The certificate holder became suspicions that the attorney and the investor were colluding based on the attorney’s representation of another client doing business with the investor under similar circumstances. The lower court appointed the property owner’s daughter as guardian ad litem for her father and authorized her to sell the property to the investor, who was to pay the legal costs. A final decision was withheld until a pending Supreme Court decision regarding a similar matter was reached. Following that decision, the lower court barred the investor from intervening in the proceedings, imposed a constructive trust on the investor, and substituted the certificate holder for the investor in the contract for the property’s sale.

On appeal, the Appellate Division accepted the lower court’s finding that the investor and the owner’s children attempted to conceal the investor’s involvement until after the default judgment was obtained. In this case, however, the Court found that the certificate holder’s service of the notice of redemption by publication, a highly disfavored procedure, outweighed the flaws in the manner in which the owner’s children’s and the investor’s relationship was conducted. Essentially, the Court invoked the “clean hand doctrine” against the certificate holder, thereby excusing the investor’s and property owner’s actions. The certificate holder also asserted that the investor’s failure to record the property sale contract according to statute could block a motion to intervene. Recording, however, is not compulsory under the statute. Based on its findings and conclusions, the Court reversed the lower court’s grant of foreclosure to the certificate holder and ordered that the investor’s motion to intervene be reinstated. The lower court’s finding that the price to be paid by the investor exceeded nominal consideration was remanded for an explanation as to how the lower court reached that determination because it had not been addressed at trial.

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