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Wachovia Bank, N.A. v. DiLorenzo

2005 WL 1939777 (N.J. Super. Ch. Div. 2005) (Unpublished)

FORECLOSURE; TAX SALES; TITLE RAIDERS—If a property owner obtains money from a title raider to redeem a property under threat of a tax foreclosure where the title raider is the contract purchaser of the property, the redemption may be barred.

An investor bought a tax sales certificate with an interest rate of zero. It “recorded the certificate and paid all unpaid municipal liens and taxes. After holding the certificate for two years [the investor] foreclosed on the property. An order setting the amount, time and place of redemption was entered which required [the property owner] to redeem it by a given date.” On the day before that date, the property owner redeemed the certificate. The bank then asked the Court “to bar the redemption arguing that a title raider advanced the money for redemption to [the property owner].” The alleged “sham” buyer was the contract purchaser of the property with a closing scheduled to take place after the redemption period had ended. The contract of sale was amended to indicate that the contract purchaser advanced money to the property owner. Further, the “contract was entered into only eight days before the redemption period was to end.” Allegedly, the sales price was about twenty-five percent ($70,000) below fair market value. Further, $50,000 was being held in consideration for permitting the property owner to remain at the property for a period of four months.

Under New Jersey law, “[o]nly parties named in the cause may redeem and a contract purchaser is not a named party in the cause. ... The history of the statute demonstrates that a contract purchaser cannot redeem.” Essentially, the tax certificate investor claimed that the facts and circumstances leading to the redemption indicated a ruse. It asked for the Court to either bar redemption or “in the alternative create a constructive trust and permit limited discovery so [it could] demonstrate [the contract purchaser was] a title raider.”

In response, the property owner argued that “she looked for funds to redeem and obtain it. She sold the property to obtain her equity.” She argued that this was no different “than a local church advancing money to permit [her] to sell the property.” She argued that it should not interest the Court how she raised the funds. She pointed out that she, not the alleged title raider, actually redeemed. She further argued that she was permitted to redeem at any time and that the contract purchaser did not seek her out. Instead, she claimed that she hired an attorney and “sought out a person to purchase her property.”

The Court pointed out that “New Jersey favors the sale of tax sale certificates for purposes of collecting taxes.” The courts have been directed by the legislature to construe the law “liberally ... to encourage the barring of the right of redemption by actions in the Superior Court to the end that marketable titles may thereby be secured.” According to case law, title raiders frustrate “the incentive to purchase a tax sale certificate.” According to the Court, that is why the Legislature limited “who may redeem to a party to a cause of action who has an interest [in] the land which is the subject of the foreclosure.” Pointedly, the redemption statute “does not include a contract purchaser as a person with the right to redeem.” That was an actual amendment which was intended to eliminate a prior statutory provision that made “reference to other persons with interest.” Further, there was a similar case in 1990 where a court reasoned that the contract purchase was an heir hunter because it sought out the heirs of a piece of property being foreclosed upon and then entered into a contract with them whereby the heirs would take money advanced and redeem.” The Court looked at the limited evidence before it, and saw a set of suspicious circumstances. Consequently, it ordered discovery “to further develop the facts surrounding the contract and how [the property owner] obtained the monies for redemption.” In conjunction with that, it ordered that all money from the transaction be held in escrow and if the contract purchaser was “determined to be a title raider, a practice which case law and the legislatures have specifically condemned, then the Court would take ‘appropriate action’ and impose a constructive trust so that [neither the investor] nor the [property owner would be] harmed.”

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