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In Re Rossiter

2008 WL 4837481 (U.S. Dist. Ct. D. N.J. 2008) (Unpublished)

FORECLOSURE; TAX SALES — Within the context of a strict foreclosure proceeding brought pursuant to New Jersey’s tax sale laws, the operative date of the tax foreclosure sale for bankruptcy purposes is the date of entry of final judgment of foreclosure just as if the property had been sold at a foreclosure sale.

When an owner obtained title to its home, the property was subject to a recorded tax sale certificate (for failure of the owner to pay municipal taxes). Under New Jersey law, the certificate was a lien on the home subject to the owner’s right of redemption. The owner did not redeem the certificate within two years after the certificate had been sold to the holder. Based on that, the holder sued. A final redemption date was set by the court and the owner was notified of the amount needed to redeem the home. The owner failed to redeem and the Court issued a foreclosure judgment. Title to the property was transferred to the certificate holder.

More than four months later, the foreclosed owner filed a petition in bankruptcy seeking to protect its home under a bankruptcy provision that allows a debtor to cure a default on a lien to a principal residence until the residence is sold at a foreclosure sale. The Bankruptcy Court denied the relief, ruling that the real property was not property of the debtor’s estate. The former owner appealed. She claimed that because title to the property at issue was transferred in a strict foreclosure action rather than at a foreclosure sale, she retained a right to cure the default indefinitely.

The United States District Court affirmed the order. It compared the New Jersey tax sale law, which operates to award title to a tax sale certificate holder, to the New Jersey mortgage foreclosure sale procedure, concluding that both result in vesting title to the buyer. The Court equated the vesting of equitable title in the winning bidder at a foreclosure auction with the effect of a final judgment of foreclosure under the tax sale law. As such, the Court held that, within the context of a strict foreclosure proceeding brought pursuant to the tax sale law, the operative date of the “foreclosure sale” under the bankruptcy provision would be the date of entry of final judgment of foreclosure. Therefore, the Court concluded that the former owner’s right to cure the default affecting her principal residence expired upon the state court’s entry of final judgment of title to the tax certificate holder.


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