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Township of Mantua v. 568 Lambs Road

A-1303-10T1 (N.J. Super. App. Div. 2011), (Unpublished)

FORECLOSURE; TAX SALE — With respect to in rem foreclosures, a municipality is required to provide actual notice to all persons with a recorded lien interest in the subject property and such notice must be given in the same manner as service of process would be made or by mailing it to the holder’s last known address, which may mean an address in the municipality’s files related to recent transactions between the lienholder and the municipality.

A property owner obtained a judgment against an adjoining property owner. The judgment was docketed in the Superior Court. As a result, the owner (lienholder) had a statewide lien on all of the adjoining owner (debtor’s) real property in New Jersey. Several years after the judgment was docketed as a lien, the debtor failed to pay real estate taxes on its property and the municipality conducted tax sales and bought the tax sale certificates for the property for itself. The debtor later abandoned the property.

The lienholder and the municipality interacted on various matters over the years, each involving attempted tax sale foreclosures. The lienholder had successfully challenged the validity of several tax sale foreclosures based on lack of notice. During that time period, the municipality was made aware that the lienholder was being represented by a different attorney than the one listed in its judgment against the debtor. The lienholder later dealt with the municipality in connection with a potential sale of a portion of its property to the municipality as part of the municipality’s redevelopment plan. In that transaction, the parties entered into an agreement that listed the lienholder’s address for correspondence and identified the property owner’s then attorney. From then on, tax bills for the lienholder’s property were sent there as well. A year later, the municipality filed a condemnation action to obtain an easement over a part of the debtor’s property. The lawsuit named the lienholder and the municipality as two of several potentially interested parties. None of the other interested parties answered. The municipality and lienholder eventually entered into a consent judgment under which they agreed to divide the condemnation proceeds evenly between them. The consent judgment established the priority of the lienholder’s judgment lien and the municipality’s tax sale certificates over all other parties, but it did not establish which of the two had priority over the other.

Some time later, the municipality filed an in rem tax foreclosure lawsuit on the tax sale certificates it held on the debtor’s property. The municipality provided general notice of the lawsuit by publication in a newspaper and by posting at four locations within the municipality and at the county clerk’s office. The municipality conducted a title search. It revealed the lienholder’s lien on the property. The municipality, despite its subsequent dealings with another attorney, sent notice of the foreclosure suit to the lienholder’s attorney at the time it secured the lien (as was listed in the judgment). However, that attorney was deceased. The municipality reviewed the New Jersey Lawyer’s Diary and Manual, and sent notice to the deceased lawyer’s son, also an attorney, but he did not respond. The municipality’s attorney used a database to find the lienholder’s business address and sent the notice to a New Jersey address, as opposed to the Delaware address listed in the tax records. As a result, the lienholder never responded and the municipality received a final judgment in foreclosure on its tax sale certificates on the debtor’s property. The municipality then recorded the foreclosure judgment.

The lienholder’s actual attorney became aware of the foreclosure and advised the municipality that the foreclosure judgment was deficient because his client never got notice. When the municipality refused to amend the judgment, the lienholder moved to invalidate the foreclosure judgment under Rule 4:50-1(c), contending that the municipality intentionally and fraudulently failed to provide it with notice of the foreclosure. It also argued that, alternatively, under Rule 4:50-1(d), the foreclosure judgment was void as against the lienholder because the municipality failed to provide it with actual notice of the foreclosure lawsuit.

The lower court affirmed the judgment, but only based its decision on Rule 4:50-1(c), finding that the municipality did not intentionally and fraudulently fail to provide notice. It did not address the lienholder’s other argument. The lower court also based its decision on the fact that the lienholder did not provide any certifications from the deceased lawyer’s son, also a lawyer, as so why he did not notify the lienholder about the suit. It noted that the lienholder’s partners did not submit certifications confirming that they did not receive actual notice of the foreclosure lawsuit. Based on that, the lower court stated that it would not assume lack of actual notice by the lienholder, and it found no evidence of fraud by the municipality.

The lienholder filed a motion for reconsideration, arguing that the lower court failed to address its argument that, under Rule 4:50-1(d), i.e., the foreclosure judgment should be void as against its lien because it never received actual notice. The municipality argued that it was improper for the lienholder to submit new certifications for a motion for reconsideration. But, the lower court disagreed and granted relief. The municipality appealed and the Appellate Division affirmed, finding that the late-filed certifications were acceptable since the lower court never addressed the lienholder’s claim that it had never received actual notice. Therefore, on the reconsideration motion, such certifications can be considered with respect to unresolved aspects of the lienholder’s original motion. The Court noted that, with respect to in rem tax foreclosures, a municipality is required to provide actual notice to all persons with a recorded lien interest in the subject property. Such notice must be given in the same manner as service of process would be made or by mailing to the holder’s last known address. Since, in this case, the lienholder had a docketed judgment lien against the debtor’s property, the lienholder was entitled to actual notice of the lawsuit. In that regard, the municipality failed. It did not meet the requirements because it had notice of the lienholder’s attorney based on prior dealings with him. Yet, it chose to send notice to a prior attorney based on the title search results. Further, it did not even send the results to that attorney, who had died, instead it sent the notice to that attorney’s son. Regarding sending notice to the lienholder itself, the tax assessor’s office had the proper mailing address. However, instead of using that address, the municipality elected to conduct a database business search to find an address for the lienholder. Based on these circumstances, the municipality did not give actual notice to the lienholder because it failed to send it to the correct addresses that were reasonably ascertainable.

66 Park Street • Montclair, New Jersey 07042
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