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Fabrikant v. Mitchell

2006 WL 796947 (N.J. Super. Ch. Div. 2006) (Unpublished)

TAXATION; FORECLOSURE — Where a third party purchaser neither attempts to take advantage of a property owner nor deprive the holder of a tax sales certificate of its rights, and the contract sales price for the property is more than nominal in that it provides the property owner with extra cash, the third party purchaser becomes the equitable owner upon contract execution and has the right to redeem any outstanding tax sales certificates.

A homeowner failed to make municipal tax payments. Consequently, tax sale certificates were sold for unpaid taxes and sewer charges. The purchaser of the certificates instituted a foreclosure action. After the redemption cut-off date, but prior to entry of final judgment, the homeowner found a third party to buy the property. The contract price was for an amount in excess of the amount required to redeem. As provided in the contract for sale, the third party buyer used part of the proceeds of the sale otherwise payable to the homeowner to redeem the certificates. Although redemption was made prior to entry of final judgment, the tax collector failed to file the Certificate of Redemption with the Superior Court Foreclosure Unit and a final judgment of foreclosure was entered. The homeowner filed a motion to vacate the final judgement as improper and unlawful because redemption had occurred. The holder of the certificates opposed this motion claiming it was the third party purchaser redeeming the certificates and not the homeowner; and that the transaction was a title raiding scheme designed to defeat its rights protected by the New Jersey Tax Sale Law.

The interests of a tax certificate holder are subordinate to the statutory right of redemption. Two years after the tax certificate sale, the holder of the certificates may commence a tax sale foreclosure to bar the property owner’s right of redemption. Anyone with an interest in the land may redeem prior to the date fixed as the last date of redemption. A person who acquires interest in the property for a nominal consideration does not have the right to redeem or to participate in the foreclosure action. The Court held that the homeowner was the redeeming party. The fact that the money used for the redemption was paid to the homeowner by a third party purchaser was irrelevant.
Because the third party purchaser became the equitable owner upon contract execution, fairness and equity required that the contract price be more than a nominal fee. In this case, the Court found the third party purchaser neither attempted to take advantage of the homeowner nor deprive the holder of the tax sale certificates of its rights. The contract sales price for the property was $85,000. This was sufficient to satisfy the holder of the tax sale certificates; to allow the homeowner pay other debts; and to provide the homeowner with extra cash to raise her grandchild as a single mother. Without this contract, the homeowner would have remained in debt and her wages will continue to be subject to garnishment to pay the outstanding obligations. The third party purchaser was not acting solely to further its own economic self interests because the contract for sale conferred a substantial benefit on the homeowner. The Court believed that the Tax Sale Law should not be read to prevent a homeowner from salvaging equity in the property. Contrary to the argument of the tax certificate holder, this kind of redemption would not hinder future tax sales. The benefit of receiving an 18% interest rate on tax certificates would not be disturbed by allowing the homeowner to vacate the foreclosure judgment.

The Court ordered a private auction where the only bidders would be the tax certificate holder and the third party purchaser for the right to purchase the homeowner’s interests in the property. The opening bid was set as $85,000. Thus, if the tax certificate holder was not the successful bidder it would nonetheless receive a substantial return on its investment.


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