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M. Credit, Inc. v. Reid

A-4622-05T1 (N.J. Super. App. Div. 2007) (Unpublished)

FORECLOSURE; TAX SALE; REDEMPTION; INTERVENTION —New Jersey’s Tax Sale law does not allow the contract purchaser to redeem a tax sale certificate prior to applying to the court for admission as a party to the foreclosure action.

The holder of a tax sale certificate sold by a municipality for unpaid municipal taxes filed a tax foreclosure action. Subsequently, a redemption amount was set. Redemption was not made by the set redemption date, and the holder applied for and obtained a final judgment on that date. Prior to the redemption date, an investor claimed that it entered into a binding contract with the owner of the real property to purchase his interest in the property for $120,000. Neither the investor nor the owner provided any evidence of the property’s value. In the course of the ensuing motion practice, the certificate holder submitted an uncertified real estate broker’s estimate of value in the amount of $289,000. While the investor did contact the municipal tax collector requesting the amount to redeem as a “contract purchaser,” no firm redemption amounts were discussed and the investor never redeemed. Its attorney also contacted the Office of Foreclosure of the Superior Court of New Jersey to advise that it sought the exact payoff amount required for redemption and requested that the court refrain from entering final judgment until the owner received a final payoff figure and was given an opportunity to redeem.

A week later, the investor sought to become a party to the foreclosure action, and filed a motion to intervene, requested a stay entry of final judgment, and asked the Court to permit the owner to fully redeem funds. In response, the holder of the tax sale certificate requested entry of judgment, and final judgment was entered by the Office of Foreclosure as an uncontested matter. The investor again sought intervenor status and a vacation of the final judgment. The lower court denied the motion in its entirety, finding that the information submitted by the investor was insufficient to enable the court to determine whether a bona fide contract indeed existed and, if so, whether the alleged $120,000 purchase price constituted more than nominal consideration. The owner had also submitted a certification to the court that the sales agreement was arms length, and that he expected to receive net proceeds of at least $15,000 to perhaps as much as $45,000.

On appeal, the Appellate Division affirmed the lower court’s judgment, finding that the investor violated the New Jersey Tax Sale law because it attempted to redeem prior to applying to the court for admission as a party to the foreclosure action. However, the Court remanded the matter to the lower court to receive additional evidence as it deemed appropriate to determine whether the investor and owner were parties to a contract for sale of the property for more than nominal consideration, as required by law. If not, the investor would have no rights in the action or to the property. The Court concluded that if a contract for more than nominal consideration were established, a constructive trust should be imposed on the investor’s rights under the contract, and the certificate holder would have the option of succeeding to the investor’s rights for the purchase of the property from the owner.

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