Case Law Summaries

Crusader Servicing Corp. v. City of Wildwood

• Opinion Date: June 12, 2001
• Real Property Law
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TAX SALES; INTEREST RATES—Where a tax sale certificate is erroneously sold by a municipality and the lienholder makes subsequent years’ tax payments in reliance on the certificate, the municipality is obliged to return the tax payments with interest at the full certificate rate, not just at the “tort” rate.

A tax sale was held even though the property owner had delivered a certified check in the full amount of the arrears just before the sale and the check was deposited in the municipality’s account on the day of the tax sale. The tax collector accepted payment of the taxes from the lienholder for the next three years to protect its investment. The lienholder was not told that the original taxes actually had been paid on time. The property owner alleged that it attempted to make tax payments during the period, but its payments were refused by the tax collector. There was evidence, in fact, of one such attempt, but it appeared that when the municipality refused payment, the property owners “retreated into the shadows and remained dormant for almost three years.” When the lienholder began to foreclose the property, the property owner’s attorney persuaded the municipality that the tax sale certificate had been erroneously sold. The municipality acknowledged its mistake, and advised the lie holder that it would cancel the certificate and reimburse the lienholder at “the legal rate of interest” on the amount owed. The lienholder responded that the rate of interest was insufficient, and insisted that “any real estate taxes or fees validly paid [after the tax sale certificate was sold were] subject to statutory interest and should bear interest at 8% for the first $1,500 and 18% thereafter.” The “8/18” rate is applicable to any subsequent expenditures made by a lienholder in order to protect its tax sales certificate status by keeping the real property tax payments current. Under New Jersey law, a non-owner buyer of a tax certificate may remit payment for subsequent taxes to a municipality and may earn interest on the subsequent payment as well. New Jersey statute controls the interest rate for the subsequent payment of taxes, permitting rates not in excess of the “8/18” rate. Here, the municipality adopted the “maximum” rate. The Court recognized that this was not the first case in which the municipality improperly sold a tax lien. It stated that “[n]ormally the error is quickly discovered and the purchaser of the certificate is reimbursed for monies paid in the acquisition of the certificate together with interest at the ‘lawful’ rate.” Case law holds that the amount of interest in an absence of statutory authority may be set by the court as an exercise of its equitable power. Further, prior case law set that rate at the tort interest in Rule 4:42-11. The lienholder did not dispute that the money originally paid by it for the certificate should bear the “Court Rule” rate of interest. It agreed that the payment the municipality made to correct the original error was not a “redemption,” but was repayment of a debt. The municipality argued that the tort interest rate should continue to control the issue with respect to subsequent “protective” tax payments made by the lienholder. The Court thought otherwise. According to it, the certificate holder paid those taxes with the justifiable expectancy of being redeemed at the statutory interest rate. Further, the Court believed that the municipality was not without fault nor were the property owners. The municipality placed the lienholder in a position of an invalid certificate holder by not informing the lienholder of the mistake and (if the property owner’s allegation was correct, by not accepting the proffered tax payment[s]). The property owners were held to be at fault for not timely paying their taxes. With that in mind, the Court, exercising its equity powers, elected to “generally conform to established rules and precedence” and not “change or unsettle rights that [were] created and defined by existing legal principles.” Here, the lienholder was the only party not at fault. Consequently, the Court held that the lienholder was “entitled to be reimbursed at the statutory rate of interest that it relied upon in advancing the real estate property taxes.” The municipality could insist on receiving the statutory rate of interest from the property owner itself, although it was free to reach a settlement with the property owner for a lower interest rate. Such a settlement, however, could have no effect on the interest rate that the lienholder should have received for its protective payments.

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