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Westwood Investment Co., LLC v. Bankers Trust Company

A-4913-08T3 (N.J. Super. App. Div. 2010) (Unpublished)

TAXATION; FORECLOSURE; NOTICES — Property owners have a duty to make sure that their property taxes are paid and the Tax Sales Law is to be liberally construed so as to bar the right of redemption and allow a foreclosing certificate holder to secure marketable title to the property and tenant-buyers under lease-purchase agreement are not entitled to be served with notice because they are not the record owners of the property.

A husband and wife purchased a property and financed it with a mortgage loan from the Veteran’s Administration (VA). As a result of that financing mechanism, Bankers Trust Company held title to the property, as trustee, pursuant to a recorded deed. The couple leased the property pursuant to a lease-purchase agreement, and, eventually they sold the property to their tenants. The buyers obtained mortgage financing and retained a title insurance agent to conduct the closing. The title agent received the mortgage loan proceeds, paid off the seller’s mortgage, and paid the balance to the seller. The agent then received a deed transferring title from the trustee to the sellers, as well as a deed transferring title to the property from the sellers to the tenant-buyers. The title agent never recorded the deeds or the tenant-buyers’ mortgage.

The new owner never paid property taxes. They assumed that their mortgage payment included the tax obligations, much like their rental payments had included it. They never received tax bills, nor did their lender because the municipality continued to send the tax bills to the trustee for the VA since it was still listed as the property’s record owner. The municipality issued a tax sale certificate which was recorded and then sold.

About five years later, the tax sale certificate holder sent the VA’s trustee its notice of intent to file a complaint to foreclose the tax sale certificate and then filed a foreclosure complaint naming the trustee as a party. The trustee did not respond to the lawsuit, and a default judgment was entered. The lower court then set the redemption amount and the redemption deadline. The certificate holder served its request to enter default and order on the trustee, and in response, a successor trustee executed a new deed to the original borrower-sellers, which was recorded after the redemption deadline.

The trustee and successor trustee failed to redeem and the lower court entered final judgment in the certificate holder’s favor granting fee simple title to the property to the certificate holder. The certificate holder then sold the property and that buyer then resold the property. At that point, the original tenant-buyers found out what was transpiring and sought to vacate the foreclosure judgment. They argued that the certificate holder and the transferees had an obligation of diligent inquiry to determine if anyone lived at the property, and that they were entitled to service of process in the foreclosure proceeding. The lower court disagreed, finding that the original tenant-buyers were not entitled to service of process because they had no recorded interest in the property. It held them to be bound the final judgment of foreclosure. The buyer’s motion for reconsideration was also denied.

On appeal, the Appellate Division affirmed. The Court noted that property owners have a duty to make sure their property taxes are paid. It also noted that the Tax Sales Law is to be liberally constructed so as to bar the right of redemption and to allow a foreclosing certificate holder to secure marketable title to property. Further, the statute provides that anyone claiming an interest in property subject to a tax foreclosure proceeding whose interest could be recorded, but did not record that interest, is bound by the proceedings. In this case, the Court found that the tenant-buyers were not entitled to be served because they were not the record owners of the property. In addition, even though they had a deed to the property and had occupied the property prior to the tax sale foreclosure, their interest in the property was still foreclosed. Since their deed was never recorded, they were bound by the proceedings as if they had been served and appeared in the proceeding. Further, the Court rejected the tenant-buyers’ argument that the certificate holder and its transferees had an obligation to inspect the property to discover their interest in the property, finding that there was no statute or case law requiring a certificate holder to inspect the property or do anything else to ascertain the identity of persons claiming an interest in the property.

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