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F-11076-03 (N.J. Super. Ch. Div. 2005) (Unpublished)

TAX SALES; TAX RAIDERS—Even though one may buy a mortgage for its full value after a tax sale complaint has been filed, the buyer still may be disqualified from redeeming the property if the amount paid for the mortgage is only nominal compared to the value of the property under foreclosure.

The owner of a tax sale certificate filed a foreclosure complaint in June of 2000. The complaint named the mortgage holder as a defendant. Almost five years after the foreclosure complaint was filed, an order was entered setting the time, place, and amount of redemption. About five weeks later, an investor “purchased and received an assignment of the mortgage” for the full balance on the mortgage. It then moved to intervene in the action and redeem the property. The tax sale certificate holder characterized the investor as a “title-raider.” The investor argued that it was not a “title-raider” because it had complied with the law and paid full value for the mortgage. It argued that “[t]he test to determine whether the consideration paid is nominal should be to be compare the consideration paid to the value of the interest obtained.” The Court rejected that theory. It recited the public and legislative policy of barring “title raiders or heir hunters [from coming in and purchasing] a parties’ redeemable interest.” It pointed out that that interest was obtained through the efforts of the tax sale certificate holder and to allow a title raider to redeem the property would “frustrate[] the incentive to purchase a tax sale certificate.” Under case law, there are “two methods of determining whether the value paid for [an] interest and property was nominal. ... The first was an economic reality test which compares the price paid for the interest to the value of the property.” Here, the alleged title-raider paid $12,000 for property interest worth $200,000. “The second method is the percentages test. ... Under this test you compare the value paid for the interest to 25% of the value of the property.” Under this test, the $12,000 paid “would be considered nominal compared to $50,000.” Therefore, the Court concluded that under either test, the alleged title-raider paid nominal consideration for its interest and [was] not entitled to intervene or redeem.” Further, the Court interpreted prior case law to mean that “only individuals who do not have notice of the foreclosure complaint prior to purchasing an interest in the property may intervene.” The alleged title-raider failed this test as well.

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