Skip to main content

Prakash v. Velasquez

A-5487-03T2 (N.J. Super. App. Div. 2005) (Unpublished)

TAX SALES —Where a knowledgeable person buys a tax sales certificate knowing that a later one is in the process of being foreclosed but does not intervene in the foreclosure, it cannot have the foreclosure set aside at a later date on the basis of extraordinary circumstances.

An investor purchased by assignment from a municipality a tax sale certificate that encumbered certain property. About a year later, the investor instituted an action to foreclose all rights of redemption. A holder of a prior tax sale certificate accepted service of the foreclosure process. With knowledge of the pending action, a buyer bought the prior tax sale certificate and began substantial renovations to the property. The buyer, however, did not intervene in the foreclosure action to protect his interest. A court fixed a date as the deadline for redemption of the tax certificate upon which the investor was foreclosing. A judgment of foreclosure was issued. The buyer moved to vacate the foreclosure judgment and the application was denied. The buyer sought relief under the court rule that allows vacation for “any other reason justifying relief from the operation of the judgment or order.” The Appellate Division pointed out that “the policy favoring the finality of judgments is an important factor so that relief is available only when ‘truly exceptional circumstances are present.’” Furthermore, this particular ground for vacating the judgment “should be used ‘sparingly’ and only ‘in situations in which, were it not applied, a grave injustice would occur.’” Under those guidelines, the Appellate Division could not find any exceptional circumstances. When the buyer purchased the earlier tax lien and invested in the property, he knew that the superior tax lien was being foreclosed. For that reason, the Court was satisfied that the lower court’s conclusion that the buyer’s “poor business judgment does not equate to ‘exceptional circumstances’ ... was correct.” The Court distinguished the present matter from a case that granted relief to a 74-year old widow with a history of severe psychiatric problems, including several hospitalizations for mental illness. Unlike the investor in the present case, who was a real estate speculator, the mentally ill woman “lacked an ability to appreciate the nature of the tax foreclosure as well as the pleadings served upon her.” For that reason, the court in the earlier case properly found that the woman’s failure to answer the complaint or redeem the certificate was “excusable.” Further, the foreclosing investor had no duty to notify the buyer. In fact, the investor “had a right to rely on the effect of the lis pendens statute. The buyer purchased the earlier tax judgment after the lis pendens was filed and that put the buyer on notice of the pending foreclosure. Thus, the lis pendens statute protected the foreclosure judgment. Consequently, according to the Court, “nder the totality of the circumstances, ... there [was] no equitable basis to grant [the buyer] the relief accorded” under court rules to vacate the foreclosure judgment.

66 Park Street • Montclair, New Jersey 07042
tel: 973-783-3000 • fax: 973-744-5757 •