ROYAL TAX LIEN SERVICES, LLC v. JOSEPH MORODAN

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

ROYAL TAX LIEN SERVICES, LLC,

d/b/a CRUSADER LIEN SERVICES,

Plaintiff-Respondent,

v.

JOSEPH MORODAN and SYLVIA MORODAN,

husband and wife,

Defendants-Appellants,

and

STATE OF NEW JERSEY and

THE NEW JERSEY ECONOMIC

DEVELOPMENT AUTHORITY,

Defendants.

Argued April 29, 2015 Decided July 20, 2015

Before Judges Alvarez, Waugh, and Maven.

On appeal from the Superior Court of New Jersey, Chancery Division, Morris County, Docket No. F-5142-11.

Ronald T. Nagle argued the cause for appellants.

Robert W. Keyser argued the cause for respondent (Taylor and Keyser, attorneys; Mr. Keyser, on the brief).

PER CURIAM

Defendants Joseph Morodan and Sylvia Morodan appeal from the October 3, 2014 denial, following remand, of a Rule 4:50-1 motion to vacate a final judgment in a tax sale certificate foreclosure action brought under N.J.S.A. 54:5-85 to -104.67 (the Tax Sale Law). Before the trial court and on appeal, defendants contend that equity demands that the judgment of foreclosure be set aside for a short period of time to allow them the opportunity to redeem, as they have potential purchasers for the property in question. After our review of the record and relevant precedent, we reverse and remand to allow defendants a sixty-day window in which to redeem. The timeframe is to be calculated from the date of this decision. Should defendants fail to redeem within that sixty days, plaintiff may apply for reinstatement of the judgment and proceed accordingly.

After a thorough exposition in an eightpage written decision of the procedural history and merits of the motion, the Chancery judge concluded that defendants had not met the standards found in Rule 4:50-1(a) and (f). We had earlier remanded the matter because of the incomplete record and prior judge's minimal findings of fact and conclusions of law. Royal Tax Lien Servs., LLC v. Morodan, No. A-6030-12 (App. Div. July 3, 2014).

On remand, the second judge found the facts and circumstances as we reiterate them here. Defendants are the record owners of a gas station which had been occupied by a tenant who paid both monthly rent and the property's real estate taxes. The tenant defaulted on its obligations on some unspecified date. On December 18, 2008, Royal Tax Lien Services (Royal) purchased the resulting tax sale certificate at no interest but with a premium of $5100. Thereafter, as the judge explained

On May 26, 2011, Royal allegedly served [d]efendants with written notice of its intent to commence tax foreclosure proceedings. On July 7, 2011, Royal filed a tax foreclosure [c]omplaint against [d]efendants; and sought to bar the [d]efendants' right to redeem. On July 28, 2011, [d]efendants were personally served with the [c]omplaint and [s]ummons. Attorney for [d]efendants sent an [a]nswer and [s]eparate [d]efenses to the [c]ourt. Defendant[s'] documents had numerous filing problems. First the [a]nswer and [s]eparate [d]efenses were not submitted with a Foreclosure Case Information Statement, then there was not an original signature by [d]efendants' attorney. Defendants' documents were accepted in November 2011.

[The initial judge] deemed the answer to be non-contesting and the case was submitted to the Foreclosure Unit for processing. [O]n December 13, 2011, Royal filed an application to enter an [o]rder [s]etting the [t]ime, [p]lace and [a]mount for redemption. Six months later, in June 2012, [a second judge] entered an [o]rder [s]etting [t]ime, [p]lace and [a]mount for [r]edemption. One month later, on July 30, 2012, the [o]rder was sent to the [d]efendants' attorney. On August 7, 2012, [d]efendants' attorney acknowledged receipt. Per [the second judge's] [o]rder, September 10, 2012[,] was the last day [d]efendants could redeem for redemption.

On November 19, 2012, Royal assigned the tax certificate to [p]laintiff. On December 14, 2012, [p]laintiff filed a motion to substitute name of [p]laintiff. On January 7, 2013, [the second judge] entered an [o]rder substituting [p]laintiff. [I]n January 2013, [the second judge] entered [f]inal [j]udgment.

In our prior opinion, Royal Tax Lien, supra, slip op. at 56, we expressed concern over alleged improprieties on the part of plaintiff or its predecessor who acquired the certificate

Timothy W. Bricker, the senior vice president of WRCC, LLC, signed plaintiff's certification in opposition to defendants' Rule 4:50-1 motion. Bricker is also the senior vice president of Royal Tax Lien Services, LLC d/b/a Crusader Lien Services, "the predecessor in title to the tax sale certificate." Bricker asserted that Royal Tax Lien Services LLC had been exonerated of charges of "bid rigging" brought by the Department of Justice.

But Bricker's certification acknowledged that Royal's "predecessor entity," and its former principal, "have pled to antitrust violations, and have entered into a settlement agreement with the Department of Justice. However, that entity has nothing to do with this plaintiff, or to Royal." Bricker alleged that Royal purchased the certificate "[a]s a result of competitive bidding conducted by the Township of Dover Tax Collector, purchased at a zero percent interest rate, "and a premium of $5,100 was paid to the municipality."

The predecessor entity that pled guilty to federal bid rigging charges is "Crusader Servicing Corporation." The name of that corporation is very similar to "Crusader Lien Services," the "dba" title of Royal. It is possible but unlikely that is mere coincidence.

The remand decision does not mention this issue, which was of some concern since defendants alleged that plaintiff had improperly contacted their tenants to negotiate an agreement after they defaulted on the real estate taxes but before the final judgment on the tax sale certificate issued.

From submissions on remand, it is now clear, however, that defendants were served with notice of plaintiff's intent to foreclose on May 26, 2011, although the registered mail return receipts were dated July 13, 2011. The tax sale certificate foreclosure complaint was filed on July 7, 2011. Unpaid taxes then totaled more than $62,000. The complaint was served on July 28, 2011, and defendants' answer was not filed for more than three months, as it was repeatedly rejected due to procedural deficiencies. On December 13, nearly a month after defendants filed their answer, Royal filed a proposed order setting the time, date, and place for redemption.

The following month, on January 25, 2012, defendants sued their tenant, ultimately obtaining an uncollectible $151,314 judgment. On November 19, 2012, defendants filed successful eviction proceedings against their tenant.

On October 28, 2012, defendants negotiated a lease-purchase agreement with a prospective buyer for a total of $650,000. Defendants claim the deal collapsed because defendants' original tenant refused to vacate.

These facts are relevant because defendants suggest that plaintiff improperly contacted the tenant and negotiated a lease-purchase agreement. Plaintiff did not, as the remand judge found, either "deny or confirm this allegation." Defendants learned of the agreement on March 22, 2013, which plaintiff pointed out was two and one-half months after it obtained final judgment. By the time defendants learned of the agreement, the tenant had been removed.

In August 2014, after the remand, defendants allegedly entered into a second agreement with another prospective buyer for the same, earlier price, which would have enabled them to satisfy the tax certificate. Despite certifying that the parties remained "ready and able to proceed" if additional time were granted and the judgment set aside, no signed copies of any agreement were provided to the judge, nor any certification from the alleged prospective buyer. The judge did not find credible defendants' assertion that they had a prospective buyer.

Central to defendants' equitable claims were their alleged significant health issues. They did not explain how those health problems prevented them from dealing appropriately with their business concerns. Hence we agree that "[d]efendants' claim of physical conditions as a reason to vacate a default judgment is unconvincing. Defendant's most recent hospitalization was in 2010. Final redemption could have been obtained through 2012." Defendants gave no satisfactory answer to the question of whether a family member or friend could have assisted them.

Thus the judge who decided the matter on remand concluded that defendants had failed to establish excusable neglect under Rule 4:50-1(a), and failed to establish any other ground for relief under Rule 4:50-1(f), observing that defendants "did not redeem because they lacked the funds to do so. That is not a basis to grant the requested relief." Although acknowledging as "harsh" the disparity between plaintiff's $65,000 investment and the property's $650,000 value, he pointed to the result's furtherance of the "overriding public policy [] to assure property taxes are paid."

On appeal, defendants now raise the following two points for our consideration

I. THE TRIAL COURT SHOULD HAVE VACATED THE FINAL JUDGMENT AND ALLOWED MORODAN TIME TO REDEEM.

II. THE TRIAL COURT FAILED TO CONSIDER THE TOTALITY OF THE CIRCUMSTANCES.

We will "not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant[,] and reasonably credible evidence as to offend the interests of justice." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J.474, 484 (1974) (internal quotation marks omitted). However, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J.366, 378 (1995).

We review a trial court's decision whether to vacate a judgment pursuant to Rule4:50-1 for abuse of discretion. US Bank Nat'l Ass'n v. Guillaume, 209 N.J.449, 467 (2012); Hous. Auth. of Morristown v. Little, 135 N.J.274, 283 (1994); Del Vecchio v. Hemberger, 388 N.J. Super.179, 186-87 (App. Div. 2006).

New Jersey has a strong public policy underlying the sale of tax certificates, as government is partially funded through the collection of real estate taxes and the sale of certificates advances those payments

Municipal governments depend on real estate taxes and other property-related assessments as their primary sources of revenue. When those taxes or assessments remain unpaid for a period of time, the municipality is granted "a continuous lien on the land" for the delinquent amount as well as for "all subsequent taxes, interest, penalties and costs of collection." N.J.S.A. 54:5-6; see also N.J.S.A. 54:5-7 to -8. The Tax Sale Law converts that lien into a stream of revenue by encouraging the purchase of tax certificates on tax-dormant properties. See N.J.S.A. 54:5-19, -31 to 32. A tax sale certificate validates the amount of unpaid taxes and assessments on the property described in the certificate. N.J.S.A. 54:5-11 to -13. The sale of a tax certificate is a conditional conveyance of the property to the purchaser, subject to a person with an interest in the property having the right to redeem the certificate, as prescribed by statute. See N.J.S.A. 54:5-31 to -32, -46. Unless redemption occurs, however, a purchaser who forecloses on the tax certificate becomes the owner of the property in fee simple. N.J.S.A. 54:587.

[Simon v. Cronecker, 189 N.J. 304, 318 (2007) (citation omitted).]

The Tax Sale Law furthers other policy goals, including the creation of marketable titles and the availability of redemption opportunities to owners. As a remedial statute, it should "be liberally construed to effectuate [its] remedial objects." N.J.S.A.54:5-3. First and foremost, "[t]he Tax Sale Law serves as a framework to facilitate the collection of property taxes." In re Princeton Office Park L.P. v. Plymouth Park Tax Servs., LLC, 218 N.J.52, 62 (2014) (internal quotation marks omitted). One of its "essential objectives" is "to quickly return to the tax rolls property on which unpaid property taxes have remained in default." Navillus Grp. v. Accutherm Inc., 422 N.J. Super.169, 182 (App. Div. 2011) (internal quotation marks omitted), certif. denied, 209 N.J.232 (2012).

Another of the Tax Sale Law's goals is "to expedite and encourage the conclusion of [foreclosure] proceedings." Town of Phillipsburg v. Block 1508, Lot 12, 380 N.J. Super.159, 171 (App. Div. 2005). For this reason, its provisions permitting equitable suits to foreclose the right of redemption "shall be liberally construed as remedial legislation" to promote the securing of marketable titles. N.J.S.A.54:5-85. At the same time, "[a]lthough the primary purpose of the Tax Sale Law is to encourage the purchase of tax certificates, another important purpose is to give the property owner the opportunity to redeem the certificate and reclaim his land." Cronecker, supra, 189 N.J.at 319.

The equities at stake can vary when the redemption value is disproportionately low relative to the owner's equity in the property. As the court stated in I.E.'s, LLC v. Simmons, 392 N.J. Super. 520, 536 (Law Div. 2006), the law results in a "harshness of the tax sale certificate proceedings in this State, where people with substantial equity in a property, for whatever reason, fail to pay property taxes and thereafter default in the tax sale certificate foreclosure proceedings." In that case, the redemption amount was $22,837.50 and the property's value was $275,000. Ibid. That disparity is similar in magnitude to the disparity in this case. That opinion also stated

Until the Legislature devises a better system, courts of equity must do their best to balance the equities, taking into account the necessity of allowing the transfer of clear title and the need to compel the payment of property taxes against the necessity of ameliorating, in appropriate circumstances, the onerous impact of the procedure in circumstances where the party has remained in possession of the property and has substantial equity in it.

[Id. at 537.]

Though the Tax Sale Law allows only three months to re-open a final judgment, and then only for fraud or lack of jurisdiction, N.J.S.A.54:5-87, our court rules allow one year in which to do so, Rule4:50-2. When a statute and court rule conflict on a question of foreclosure procedure, the court rules generally control. I.E.'s, supra, 392 N.J. Super.at 533.

Under Rule4:50-1(f), a court may vacate a final judgment for "any other reason justifying relief from the operation of the judgment or order." In considering this rule, defendants allege that the trial court failed to weigh the windfall to plaintiff in balancing the equities. They also certify that their prospective purchaser remains "ready, willing[,] and able to close the deal to allow [d]efendants to redeem within forty[-]five days." Furthermore, defendants contend that such an extension will not prejudice plaintiff, who will be made whole upon redemption. Plaintiff counters that the equities do not favor defendants, who did nothing while their tenant failed to pay property taxes for five years.

Since the court in this case relied upon written submissions, similar to our own record on appellate review, we do not owe any deference to his factfindings. SeeIn re Civil Commitment of R.F., 217 N.J.152, 174 (2014). At the same time, we will defer to the court's discretionary decision under Rule4:50-1 unless it is "clearly unreasonable in the light of the accompanying and surrounding circumstances." In re LoBasso, 423 N.J. Super.475, 496 (App. Div. 2012) (internal quotation marks omitted).

This case presents equities that favor both parties. It would have been helpful had defendants' written submissions been more explicit, detailed, and forthcoming, as then there would be no unanswered questions as to the equitable considerations favoring defendants.

On the other hand, the tax sale laws and our court rules are designed to allow owners to redeem their properties where possible, and to receive relief from inequitable judgments. The analysis found in I.E.clearly favors defendants, and although not binding upon us, it clearly and convincingly outlines the equitable weight that should be accorded to a defendant's concerns in this scenario, the consequences of which are draconian.

If defendants' representations are true, then a short extension of the redemption period will allow them to sell their property and pay off plaintiff's tax sale certificate. Such an extension will work comparatively little harm to plaintiff, who will be compensated and paid interest if the sale closes, or will otherwise receive the property after only a short delay. If defendants' characterization of their buyer is credible, then the equities on balance favor granting them a short extension to attempt the sale and redemption of their property. In light of the foregoing discussion, we find it unreasonable to deny defendants such an opportunity in these circumstances.

Finally, we briefly discuss the mechanism we envision which will allow for the sixty days during which defendants may redeem their property. The calculation of the sixty days is to commence on the day of this decision. We have granted defendants fifteen more days than their forty-five-day request to account for any potential delays that may result between the issuance of this decision and its transmission to defendants.

If defendants are unable to redeem during that period, any court, either the Chancery Division or the Appellate Division, would be hard-pressed to grant any future application to set aside the default.

Reversed and remanded for proceedings in accordance with this decision.