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City of East Orange v. Block 12, Lot 1.01

A-567-03T3 (N.J. Super. App. Div. 2004) (Unpublished)

TAXATION; TAX SALES—A property owner may move to vacate a tax foreclosure judgment within three months from the date of its recording and if the equities of vacating the judgment are in favor of the owner, a court may vacate the judgment and allow the owner to redeem the tax sale certificates.

A municipality obtained a final judgment for an in rem tax sale foreclosure. The owner filed a complaint and an order to show cause to vacate the final judgment that had barred its right to redeem. In its certification, the owner claimed that although it apparently received service, it did not recognize the name or signature of the person accepting service on its behalf. The owner also argued that it had spent a significant amount of money to rehabilitate the property and that it was inequitable to permit the municipality to reap the benefits of its efforts when the owner was ready, willing, and able to redeem the tax sale certificate and pay the taxes. It also argued that the municipality would be made whole as the purpose of the in rem foreclosure laws is to collect the taxes, which the owner was prepared to pay. The lower court vacated the foreclosure judgment, giving the owner ten days to pay the taxes and the municipality’s counsel fees and costs.

The municipality appealed. It argued that the lower court’s adoption of a liberal standard to vacate the final judgment was contrary to the legislature’s purpose to encourage the barring of rights of redemption in tax sale foreclosures. The Appellate Division affirmed, holding that the lower court’s utilization of a court rule permitting a court to vacate final judgments for equitable reasons was not inconsistent with the In Rem Tax Sale Foreclosure Act. The In Rem Tax Sale Foreclosure Act provides that a court may not entertain a motion to vacate a foreclosure judgment more than three months from the date of recording, and then, only for lack of jurisdiction or fraud. The Court found that as long as the owner’s motion to vacate was made within three months, which it was, the lower court could vacate the judgment for equitable reasons. In this case, the Court agreed that the owner should be allowed to redeem both because of the amount of money expended by the owner to rehabilitate the property and the owner’s willingness to pay the taxes. Further, a municipality’s legitimate interest in collecting taxes does not include the absolute right to a windfall by getting title to a property that had been substantially renovated and that had increased in value.

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