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New Jersey Home Construction, Inc. v. Voorhees One Trust

A-2615-05T1 (N.J. Super. App. Div. 2007) (Unpublished)

MORTGAGES; FORECLOSURE; REDEMPTION —A property owner’s automatic right of redemption cannot always be assigned to a third party where the third party has paid only a nominal amount for the redemption right.

A homeowner fell behind in mortgage payments and its mortgagee foreclosed on the property. Following foreclosure proceedings, a sheriff’s sale was held and a construction company was the prevailing bidder. One week after the sale, the homeowner redeemed the property for the amount of the mortgage debt. That same day, the homeowner delivered the deed to third party purchasers. The homeowner admitted to have obtained no benefit from the sale, citing personal and moral reasons for the sale. According to the homeowner, he knew the purchaser and wanted him to live on the property with his family.

In response to the transfer, the construction company challenged the redemption. The construction company asserted that the third-party purchaser was a frequent bidder at sheriff’s sales and was attempting to undermine the bidding system. Significantly, the Internal Revenue Service (IRS) was not given notice of the complaint, despite the fact that it was a party to the foreclosure proceedings and it held a sizeable lien on the property. Nonetheless, the third party purchaser and the construction company each moved for summary judgment. The lower court ruled in favor of the construction company by confirming the sheriff’s sale and vacating the homeowner’s redemption of the property.

The third party purchaser appealed, arguing that the homeowner had an automatic right to redemption and that this right could be assigned to a third party. The construction company argued that the purchase transaction did not serve the purpose of redemption, i.e., to prevent the homeowner’s loss of property and personal liability for the deficiency. The construction company asserted that the purchase harmed the homeowner because they incurred a loss on the sale, harmed the IRS, and presented a significant potential for creditor fraud.

After reviewing these arguments, the Court first pointed at a number of procedural deficiencies. As an initial matter, the complaint was filed under the wrong docket so the IRS was not given notice of the proceedings. Also, the summary judgments were not supported by statements of material fact as required by the court’s rules, and the record on appeal was inadequate. However, the Court proceeded to rule that even if the record were more complete, the issues of credibility and potential creditor fraud on other lienholders warranted a plenary hearing.

Hence, the Court vacated the lower court’s summary judgment in favor of the construction company and remanded the issues for consideration at a hearing. Further notice of such hearing was ordered to be provided to the IRS and to other interested parties.

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