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City of Jersey City of the County of Hudson v. Block 1661 Lot 19A

A-0277-04T1 (N.J. Super. App. Div. 2005) (Unpublished)

FORECLOSURE; TAX SALES; RENT RECEIVERS—By New Jersey statute, a municipality and rent receiver are immune from negligence liability for failure to collect rent while a property is in receivership.

A property owner failed to pay the taxes on its property. The owner filed for bankruptcy, and while the action was pending, the municipality took ownership of a tax sale certificate for the property. The municipality then appointed a rent receiver, who was responsible for collecting the rent from the tenants on the property and making repairs to the property. If a tenant was thirty days’ late with making a rent payment, the rent receiver was required to serve a notice of summary dispossession on the tenant. The bankruptcy petition was eventually dismissed because the owner made all of its scheduled payments to the bankruptcy trustee and to its creditors. The rent receiver was terminated shortly thereafter. Two years later, the owner filed another bankruptcy petition, asserting that it was entitled to a credit for the taxes collected by the rent receiver. The bankruptcy court ordered the municipality to turn over any funds collected during the period the property had been in receivership. Three years later, this bankruptcy petition was also discharged. The owner then filed an adversary proceeding in bankruptcy court, once again contending that it had not received a tax credit for the rents collected by the rent receiver. The bankruptcy court dismissed the owner’s complaint, marking the case as settled. Later that year, the municipality filed an in rem foreclosure complaint against the property in the Chancery Division, asserting that the tax sale certificate had never been redeemed. In response, the property owner filed a counterclaim, requesting that the court hold the municipality in violation of the bankruptcy court order for its failure to turn over funds collected when the property was in receivership. Additionally, it sought a full accounting of all of the taxes payed during the receivership and a credit from the municipality for the taxes paid. While the case was pending, the owner redeemed the tax certificate on the property, which rendered the relief sought by the municipality moot.

The lower court denied the property owner’s counterclaim, ruling that it lacked authority to hold the municipality in violation of a bankruptcy court order, and that the claim should have been brought in bankruptcy court. It further found that the municipality had already given the owner a credit for the amounts collected during the receivership, and the additional credits requested by the owner were for taxes paid on another property owned by the owner. The lower court also rejected the owner’s claims that the municipality and the rent receiver should have been liable for negligence for their failure to collect rent, finding that both parties were immune from liability pursuant to N.J.S.A. 54:5-53.1. The owner appealed, asserting that the statute relied upon by the lower court was superceded by the New Jersey Tort Claims Act.

The Appellate Division affirmed the lower court’s ruling based on substantially the same reasoning. It rejected the assertion that the Tort Claims Act governed the matter because the owner did not raise this argument to the lower court. The Appellate Division may not hear issues that have not been previously raised before the lower court, unless they are jurisdictional in nature or substantially implicate public interest. Nonetheless, the Court held that if it were to rule on the issue, it would have found the owner’s argument to be of no merit.

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