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Breglia v. Norman & Luba, LLC

2005 WL 3338295 (N.J. Super. App. Div. 2005) (Unpublished)

TAX SALES; FORECLOSURE; REDEMPTION—Acting in strict compliance with the procedural requirements of the Tax Sales Law does not mean that a certificate holder is not obligated to act in accordance with the express or implied terms of a settlement agreement with a potentially redeeming property owner.

A man lived in his home his entire life. The house was left to him by his mother at the time of her death. He never bothered to transfer title to his name. A time came when he lost his job and he lived off his savings for five years. “At that time, believing that he had no other resources, he stopped paying the real estate taxes on his property.” The municipality then sold tax sales certificates on the property. An investor bought them and after the passage of the appropriate time, obtained a final judgment of foreclosure based on the tax sales certificates. “Facing eviction from his home, ... [the owner] attempted suicide by shooting himself in the head.” He “survived and during his treatment and subsequent counseling he learned that he was not without resources.” In fact, he had considerable assets. Three months after the judgment of foreclosure, he filed a motion to set aside the foreclosure sale. An order to show cause prohibiting the sale or transfer of the house was issued. Shortly thereafter, the parties advised the Court “that they were in the midst of settlement discussions and they sought an adjournment.” The lower court “suggested entry of an order of settlement, whereby the complaint was dismissed subject to reinstatement if the settlement was not finalized within thirty days.” The subsequent negotiations did not go well and twelve days after the “Order of Settlement was entered, the [tax certificate investor] sold the property to a third party.” The investor retained a different attorney to effectuate the sale. It wasn’t until several months later, that the property owner’s attorney learned of the sale and, at that time, he was told by the buyer, that “neither he nor his client were informed about [the property owner] or the litigation. Before learning of the sale, in fact, about thirty days after the Order of Settlement was issued, the property owner’s attorney moved to reinstate the matter and the matter was, in fact, reinstated even still before the property owner’s attorney knew of the sale. After that happened, all that the property owner’s attorney got from the tax certificate investor was the “run around.”

When all of this information came before the Court, it “held a hearing and entered an order ... restricting the transfer of the property and ordering the proceeds from [the earlier] sale deposited in the court. ... Reportedly on the direction of [the lower court, the property owner] also filed a new complaint with an order to show cause against” the tax certificate investor, its principal, and the buyer of the property. The principal of the tax certificate investor stated that the dispute with the property owner had previously been settled and that the property owner reneged on the settlement. That is why he proceeded to sell the property. The lower court was unimpressed, and held that the tax certificate investor “had violated [its] order by selling the property. [It] also found that [the principal], as the sole member of the [limited liability company that was the tax certificate investor] was liable to the same extent as the [tax certificate investor].”

The tax certificate investor’s principal appealed, contending “that the tax foreclosure judgment was final and not subject to vacation; therefore the transfer of the property was proper and [could not] be considered contemptuous or a fraud on the court.” The Appellate Division looked at the Tax Sale Law (TSL), and pointed out that property owners could not make an application to open a tax sale judgment of foreclosure more than three months from entry. It noted, however, that “courts have relaxed this time period on several occasions.” Therefore, while the statute states that “no application shall be entertained to reopen the judgment after three months from the date thereof, courts have set aside foreclosure judgments based on Rule 4:50-1. ... In such foreclosure actions, where there is a conflict between the TSL and the court rules, the court rules are generally paramount.” Under Rule 4:50-1, a qualifying applicant has one year to get relief for any of six specified grounds. Further, “independent of any statute or rule of court, the Chancery Division also has inherent power to set aside a sale or to order redemption where there is an independent ground for equitable relief, such as fraud, accident, surprise, irregularity in a sale, and the like.”

Here, the tax certificate investor contended that it “acted in strict compliance with the procedural requirements of [the Tax Sale Law]; therefore, the tax foreclosure judgment on the subject property was final and [could not] be set aside.” The property owner relied on a series of cases that allowed a foreclosure judgment to be set aside beyond the three-month statutory redemption period. However, according to the Court, in each of those cases, “the property had not been sold to a innocent third party for value,” as was the situation in this case.

As a consequence of the foregoing, the Appellate Division remanded the matter to the lower court to determine whether there had, in fact, been a settlement and if there had been a settlement, whether the property owner had defaulted on that settlement. If the lower court found that not to be the case, then the Appellate Division felt that it was “implicitly, if not explicitly, quite reasonably contemplated that the property would not be sold during the thirty-day period designed to consummate a settlement, and [the tax certificate investor’s principal] participated in [any] deception.” If that were the case, then it saw “no bar to personal liability of [the principal]. The courts of this State have recognized the participation theory of personal liability in cases involving tortious conduct of corporate officers.” Consequently, if on remand, the lower court found that there was a fraud, it would be appropriate to award damages to the property owner, but not to reverse the sale to an innocent third party.

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