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ATFH Real Property, LLC v. Winberry Realty Partnership

2010 WL 4823669 (N.J. Super. App. Div. 2010)

TAX SALES — While a tax sale foreclosure cannot be entered by way of a default when service on the property owner has been made by mail, if the property owner has filed an answer and participated in the filing of various motions, that will constitute sufficient evidence of it having been served, but a court, if it vacates the default under those circumstances, may set certain condition for the property owner to meet before the default is actually vacated.

The purchaser of a tax-sale certificate filed a foreclosure complaint seeking to fix the amount due on the certificate; to foreclose the owner’s right of redemption; and, to vest fee simple title to the purchaser. The property was owned by a partnership. The purchaser attempted to personally serve the summons and complaint at the partnership’s registered business address, which was the home of one of the partners. The partner refused to accept service, and so the purchaser served the partnership using optional mail service as permitted by Court Rules. One of the partners, who was not an attorney, filed an answer to the complaint even though Court Rules require a partnership to be represented by counsel. The Office of Foreclosure forwarded the matter to the trial court as a contested foreclosure.

The partners failed to attend several case management conferences and, as a result, the lower court struck the partnership’s answer. One of the partners then moved for relief, but repeatedly requested to have the hearing rescheduled because he was either ill or unprepared. Finally, the lower court decided that it was no longer equitable to delay the motion and it made its decision based on the filed papers. It found that the partnership’s answer did not contest the foreclosure and therefore it turned the matter back to the Office of Foreclosure as an uncontested matter. Later, an order was entered setting the amount, time, and place for the partnership to redeem by paying off the tax-sale certificate. The partnership did not redeem the tax-sale certificate before the deadline. A final judgment of foreclosure was entered in the purchaser’s favor. The purchaser then contracted to sell the property.

Later, the partnership retained an attorney who moved to vacate the judgment. The lower court judge, who did not handle the original matter, agreed to vacate the foreclosure judgment with certain conditions. She required the partnership to pay the purchaser’s out-of-pocket expenses relating to the property, as well as to pay the partnership’s attorney’s fees and costs. In addition, the lower court required the partnership to indemnify the purchaser for potential claims in connection with its agreement to sell the property.

The partnership appealed, arguing that it had not been properly served with the complaint in the first place, and therefore the foreclosure judgment should have been voided without any conditions. The Appellate Division disagreed, noting that a default may not be entered when a complaint is served through optional mail service. Service by mail is acceptable when a party “appears” by responding to the action by filing either an answer or motion. In cases where an entity is involved, the entity must respond to the action through an attorney. This did not initially happen in this case. However, the Court found that the partner’s conduct in filing an answer, as well as the filing of various motions on behalf of the partnership, was sufficient evidence of it having been served. The Court found that the partnership had knowledge of the summons and complaint, received a copy, and participated even without an attorney, Therefore, voiding the judgment for improper service was not appropriate. It noted that the lower court could have rejected the partnership’s motion to vacate, but did not do so because it would have been unfair to the other partners who might not have been aware of the lawsuit and therefore would have been unable to protect their rights. However, the lower court was within its discretion to impose certain conditions on the partnership as part of its vacating the order. It was appropriate for the lower court to make the partnership reimburse the purchaser for expenses incurred in responding to the partnership’s motions and delay tactics, as well as to require the partnership to indemnify the purchaser in connection with its agreement to sell the property.

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