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Fabrikant v. Mitchell

A-4516-05T1 (N.J. Super. App. Div. 2008) (Unpublished)

FORECLOSURE; TAX SALES; INTERVENORS — A third-party’s interest in purchasing a foreclosed property is required to intervene in the foreclosure proceeding so that the courts can oversee the transaction and guard against predatory investors who seek to exploit vulnerable homeowners facing foreclosure.

A property owner inherited a house from her mother and subsequently allowed her two brothers to live in the house while she resided elsewhere. Taxes and sewer charges went unpaid and a tax sale certificate was purchased and assigned to a buyer. The assignee continued with the foreclosure proceeding brought by the purchaser of the certificate. A redemption date was set. A third-party investor entered into a contract with the property owner to finance the redemption of the house and then to purchase it. Despite the acceptance of the investor’s payment made to the municipal tax collector, the certificate holder obtained a final judgment of foreclosure. The investor’s request to intervene was granted by the lower court. The property owner testified that she had little help from her brothers in paying for the property taxes on the house and that the contract with the investor was an opportunity for her to pay existing debts, which would end a garnishment of her wages, and she would net about $10,000.

The lower court approved the contract between the property owner and the investor and pointed out that it was not relevant whether the property owner was using her own money or the investor’s funds to redeem the property. It found that the purchase price for the contract was not nominal and that the transaction offered a substantial benefit to the property owner. Because the investor did not intervene in the proceedings before negotiating with the property owner, the lower court, in consideration of the property owner’s interest, allowed the assignee to assume the investor’s contractual rights. The lower court ordered a private auction to be held at which the assignee outbid the investor by one thousand dollars. The property owner was ordered to return all monies advanced to her by the investor.

On appeal, the Appellate Division noted that third-parties interested in purchasing a foreclosed property are required to intervene in the foreclosure proceedings so that the courts could oversee the transaction and guard against predatory investors who sought to exploit vulnerable homeowners facing foreclosure. The investor argued that it acted as the property owner’s agent when it deposited the money with the tax collector’s office and that, as a result, the transaction was under judicial supervision. The assignee argued that the investor’s failure to intervene precluded the investor from purchasing the home as a matter of law. The Court agreed with the lower court’s finding that the amount offered by the investor was more than nominal, but reversed the lower court’s decision. It remanded the matter for an imposed constructive trust in favor of the property owner so that the assignee could obtain the property according to the terms of the contract between the property owner and the investor, as opposed to the bid made at auction. If the assignee chose not to assume the contractual rights of the investor, the rights were to revert to the investor.

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