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Navillus Group, LLC v. Accutherm, Inc.

GLO-C-65-06 (N.J. Super. Ch. Div. 2009)

TAX SALES; DEEDS; RECISION; ISRA — A tax sale foreclosure judgment constitutes a “transfer” pursuant to the Industrial Site Recovery Act such that a buyer is entitled to void the purchase where a transferor of an industrial property foreclosed in a tax sale has failed to perform remediation and obtain environmental agency approval.

A buyer purchased a municipal tax sale certificate. The buyer then foreclosed on the tax lien, and obtained title to the property by means of a final judgment of tax sale foreclosure. The existing building was renovated, converted into a day care center, and leased to a day care center operator. Later, the buyer discovered that the property, previously used as a thermometer manufacturing facility, was contaminated with mercury. The buyer sued to void the tax sale foreclosure judgment under which it had obtained title to the property. It argued for this remedy under the common law remedy of “rescission” as well as pursuant to the statutory provisions of the Industrial Site Recovery Act (ISRA).

In order to void the tax sale foreclosure judgment under the common law remedy of rescission, one must show that the foreclosure judgment was obtained as the result of a substantial, material mistake contributed to by the actions and inactions of the municipality. In order to determine whether rescission was appropriate, the lower court examined the nature and extent of the buyer’s knowledge of the extent of the contamination when the buyer purchased the tax sale certificate, as well as the municipality’s requirements to notify prospective purchasers and the New Jersey Department of Environmental Protection (NJDEP) of the tax sale and the potential contamination. Pursuant to ISRA, when the tax sale certificate was sold, the municipality was required to notify prospective purchasers in writing that the property might be subject to ISRA. In addition, the municipality was required to notify NJDEP of its intent to sell a tax sale certificate so that NJDEP could assert its interest and notify prospective purchasers regarding the contamination and cleanup responsibilities. In this case, the municipality published a general notice in a newspaper that some properties for which tax sale certificates were being sold might be subject to ISRA. However, no specific written information was given regarding the potential contamination at the buyer’s property.

At trial, the municipality argued that it was only required to provide such notice if it knew the specific details regarding cleanup requirements for the property. The Court rejected this argument. It found that the municipality failed to properly notify prospective purchasers of the tax sale certificates about contamination at the property and that it failed to notify NJDEP of the tax sale so that NJDEP could assert its interest and notify prospective buyers regarding the contamination. The Court concluded that, based on the buyer’s lack of knowledge as to the extent of the contamination or of the consequences of purchasing and foreclosing a tax sale certificate, and based on the municipality’s and NJDEP’s failure to advise the buyer about the contamination, rescission was appropriate.

It then considered whether the buyer was entitled to void the purchase pursuant to ISRA. ISRA provides that the failure of a transferor of industrial property to perform remediation and obtain NJDEP approval is grounds for the transferee to void the sale and recover damages. The question for the lower court was whether a tax sale foreclosure judgment constituted a “transfer” pursuant to ISRA. Answering that question, it held that the statute does not distinguish between a sale, which is a voluntary transfer of property, and a foreclosure, which is an involuntary transfer. It concluded that the buyer’s acquisition of the property by means of a tax sale foreclosure constituted a “transfer” within the meaning of ISRA and this allowed the buyer to void the tax sale foreclosure judgment based on the prior owner’s failure to remediate the mercury contamination at the property.


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