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Varsolona v. Breen Capital Services Corp.

360 N.J. Super. 292, 822 A.2d 663 (App. Div. 2003)

TAXATION; TAX SALES—The buyer of a tax sales certificate from a municipality has the right to enter into a private payment plan with the affected property owner and to include an interest obligation in that plan.

A municipality sold a package of Tax Sale Certificates (TSCs) in a complex financing transaction. The transaction authorized the buyer “to enter into installment payment plans relating to the redemption of Tax Liens with Property Owners [allowing the buyer to] negotiate the individual terms and conditions of such installment payment plans in its sole discretion so as to maximize the amount reasonably recoverable in respect of the Tax Liens… .” No property owner was required to agree to an [Installment Payment Plan (IPP)]; it was an option offered to tax delinquents who wanted to avoid the otherwise justified institution of foreclosure proceedings. Redemption under the Act was the other option, and that could be done by the property owner at any time before foreclosure and whether or not an IPP had been agreed to.” In 1993, with the sale of about 2,500 TSCs, 434 property owners entered into IPPs. The following year, out of 1,200 TSCs sold, 132 property owners opted for IPPs. Typically, an IPP would call for a down payment and the balance to be paid with interest at the rate of eighteen percent per year. They also typically called for equal monthly installments and permitted prepayment without a penalty.

Some of the property owners who had signed IPPs persuaded the lower court to declare forfeiture of the TSCs and award treble damages to them under the Consumer Fraud Act. The dispositive issue for the Appellate Division was whether “private installment plan payment agreements in general and the IPPs offered in these cases in particular, violate[d] the tax sale law.” The lower court recognized that New Jersey statutes “neither expressly prohibit[] nor expressly permit[] private IPPs.” It then rejected the TSC buyers’ “claim that absent an express statutory prohibition, their common law right of freedom to contract should be respected.” In essence, the lower court held the IPPs to be illegal, believing “that they were inconsistent with [New Jersey tax laws’] design and purposes, and because these IPPs contain some terms that were different from, and in some cases more onerous than, those stated in [New Jersey’s tax law].” The Appellate Division disagreed, finding that the “voluntary agreements [were] neither illegal under [New Jersey statutes], nor violative of public policy.”

The IPPs were negotiable and, in fact, “some property owners employed attorneys to help them gain more preferable terms.” Seventy-six of the property owners redeemed their TSCs through the tax collector during the installment period. In those cases, the buyer, “after receiving the funds from the tax collector, would refund to the property owner all payments previously made under the IPP.” “Eighty percent of the class members completed their IPP payments, another thirteen percent, or so, redeemed through the tax collector, and the remaining seven percent appear to have lost their properties in foreclosure after failing to abide by the terms of their IPPs.”

The Appellate Division’s holding was founded under the New Jersey Constitution’s prohibition against the legislature passing any laws impairing the obligation of contracts. It also noted that under common law, “parties bargaining at arms’ length may generally contract as they wish.” Although courts “will invalidate or modify contracts that violate a statute, offend public policy, or result in economic oppression or duress,” the Appellate Division found that none of those conditions to exist. With respect to any lack of statutory authority, the Court pointed out that “[w]hen the Legislature wants to limit the contractual rights of private parties under a regulatory act, its general practice has been to say so directly.” New Jersey’s tax law “expressly recognizes that TSCs may be satisfied by direct dealings between the parties and other parts of the tax law provide additional evidence that there is a “right of direct dealings between the holder [of the TSC] and the [property] owner.” Accordingly, “whether the owner pays in one lump sum or over time, the tax collector is still not involved, unless the owner chooses to pay the TSC purchaser in a lump sum through the collector. Therefore, the general concept of private installment plans is not inconsistent with [New Jersey statutes] simply because the tax collector may not be involved in the process.” Lastly, the Court pointed out that New Jersey law seeks “to encourage tax sale foreclosure so as to assist municipalities in the collection of delinquent taxes.” Accordingly, “IPPs enhance the value of TSCs, thereby improving the municipality’s tax collection efforts. Consequently, [New Jersey tax laws’] primary purpose is served by recognizing IPPs as valid transactions.”


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