M. CREDIT, INC. v. RACIE VERNO REID, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4622-05T14622-05T1

M. CREDIT, INC.,

Plaintiff-Respondent,

v.

RACIE VERNO REID, RICHARD HUNTER

and ELAINE KRAJEWSKI,

Defendants.

___________________________________

CHERRYSTONE BAY, LLC,

Intervenor-Appellant.

________________________________________________________________

 

Argued February 27, 2007 - Decided March 30, 2007

Before Judges Skillman, Lisa and Holston, Jr.

On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, F-5806-02.

Anthony L. Velasquez argued the cause for appellant.

Susan B. Fagan-Limpert argued the cause for respondent (Robert A. Del Vecchio, attorney; Ms. Fagan-Limpert, of counsel and on the brief).

PER CURIAM

This is an appeal by a third-party investor, Cherrystone Bay, LLC, from an order denying its motion to intervene and to vacate the final judgment in tax foreclosure entered in favor of plaintiff, M. Credit, Inc. During the pendency of this appeal, on January 29, 2007, the Supreme Court rendered its decisions in Simon v. Cronecker, 189 N.J. 304 (2007), Simon v. Rando, 189 N.J. 339 (2007), and Malinowksi v. Jacobs, 189 N.J. 345 (2007). The holdings in those cases control the outcome of this appeal and impel us to affirm the order under review but to remand for further consideration of the appropriate remedy.

Plaintiff is the assignee of a tax sale certificate sold by the City of Passaic on June 18, 1996 for unpaid municipal taxes against property located at 19 Sherman Street owned by defendants, Racie Verno Reid and Richard Hunter. The two owners were brothers. Reid died after they acquired title, leaving Hunter as the sole owner. Defendant, Elaine Krajewski, holds a recorded judgment lien against the property.

On March 18, 2002, plaintiff filed a tax foreclosure action. On September 23, 2005, an order setting the amount, time and place for redemption was entered. The redemption amount was set at $74,974.62, plus costs including counsel fees of $1,184.76. The redemption date was November 7, 2005. By November 23, 2005, redemption had not been made, and plaintiff applied for and obtained final judgment on that date.

Some time earlier in November 2005, Cherrystone Bay contends it entered into a binding contract with Hunter to purchase his interest in the property for $120,000. Cherrystone Bay and Hunter provided certifications that this was an arms length, bona fide transaction. They estimated that Hunter would receive net proceeds of at least $15,000 to $20,000 and perhaps as much as about $45,000, depending upon the exact pay-off amounts needed to clear the title and after reimbursement of costs to Cherrystone Bay. Neither Cherrystone Bay nor Hunter provided any evidence of the property's value. In the ensuing motion practice, plaintiff submitted an uncertified real estate broker's estimate of value in the amount of $289,000.

On or shortly before November 15, 2005, representatives of Cherrystone Bay contacted the Passaic tax collector requesting the amount required to redeem and advised of its intent to redeem the property. On November 15, 2005, Cherrystone Bay representatives submitted a written communication to the tax collector seeking this information. These representatives initially advised the tax collector Cherrystone Bay was taking assignments of the tax title liens, but then changed the advice, stating it was a contract purchaser. Although the tax collector furnished some estimated amounts for redemption, the discussions were never finalized and redemption was never made.

On November 15, 2005, Cherrystone Bay's attorney hand delivered a letter to the Office of Foreclosure of the Superior Court in Trenton, representing himself as "legal counsel conducting the closing of the anticipated sale of property located at 19 Sherman Street." Counsel did not disclose his representation of or affiliation with Cherrystone Bay. Counsel stated that the owner wished to redeem and was having difficulty obtaining the exact payoff amount required for redemption. Counsel requested that the court refrain from entering final judgment until the owner received a final payoff figure and was given the opportunity to redeem.

On November 21, 2005, for the first time, Cherrystone Bay sought to become a party to the foreclosure action. It filed a motion to be granted intervenor status, to stay entry of final judgment, and to permit Hunter "to tender complete and full redemption funds in this matter." The motion was returnable on December 16, 2005, and was supported by an attorney's certification describing the purported contract with Hunter and the redemption efforts made to that point. The moving papers were filed by hand delivery on November 21, 2005 at the Office of Foreclosure in Trenton. Copies were served on plaintiff on November 21, 2005. Nevertheless, plaintiff requested entry of judgment, and final judgment was entered by the Office of Foreclosure, as an uncontested matter on November 23, 2005. See R. 1:34-6; R. 4:64-1.

Plaintiff argued in the trial court and continues to argue before us that Cherrystone Bay's motion was of no effect because it was filed in the wrong place, namely the Office of Foreclosure in Trenton rather than the county of venue, Passaic County. We are not persuaded by this argument. Motion papers must be filed in the Superior Court in accordance with Rule 1:5-6(b). R. 1:6-4. In tax foreclosure actions, a motion must be filed "with the Clerk of the Superior Court, unless and until the action is deemed contested and the papers have been sent by the Clerk to the county of venue, in which event subsequent papers shall be filed with the deputy clerk of the Superior Court in the county of venue." R. 1:5-6(b)(3). When Cherrystone Bay's motion was filed on November 21, 2005, the action was not yet deemed contested and the file had not yet been transmitted by the Office of Foreclosure to the county of venue. Thus, there was no defect in the place of filing. Even if Passaic County was the proper place for filing, the effect is the same, because misfiled papers in such circumstances are transmitted by the office in which they are filed to the proper filing office and deemed filed as of the date they were originally filed. R. 1:5-6(d).

On November 30, 2005, after learning that judgment had been entered, Cherrystone Bay filed another motion, seeking to vacate the final judgment and be granted intervenor status. The trial court conducted oral argument on December 19, 2005, after which it issued a written decision on March 9, 2006, memorialized by an order on April 24, 2006, denying the motion in its entirety. The court was of the view that the information submitted by Cherrystone Bay was insufficient to enable the court to determine whether a bona fide contract indeed existed and, if so, whether the alleged $120,000 purchase price constituted more than nominal consideration. In addition to certifications from principals of Cherrystone Bay, Hunter also filed a certification, supporting and joining in Cherrystone's motion. Hunter certified that he entered into a binding arms length contract for the sale of his property to Cherrystone Bay for $120,000, and he expected to receive net proceeds of at least $15,000 to $20,000 and perhaps as much as $45,000. He urged the court to vacate the judgment, allow him to sell the property and redeem the tax sale certificate, and recoup a substantial portion of his equity in his property.

The material facts in the case before us are the same as those in Simon v. Cronecker. Based upon the test for determining nominal value adopted in Simon v. Cronecker, supra, 189 N.J. at 334-35, the consideration here (assuming there was a bona fide contract for $120,000, the property value is within the general order of magnitude suggested by the incomplete record, and the pay-off amounts would yield a net recovery to Hunter in the range we have described) may indeed constitute more than nominal value. A sufficient threshold showing was made to require such further factfinding as appropriate to determine the issue.

However, as in Simon v. Cronecker, Cherrystone violated the Tax Sale Law in this case because it attempted to redeem prior to becoming a party to the foreclosure action, making the required showing of a bona fide contract for more than nominal value, and obtaining court approval to participate in the redemption process. Under such circumstances, the consequences to the third-party investor and the appropriate equitable remedy to be imposed were described this way by the Court:

Accordingly, before redeeming or causing to be redeemed the tax certificate, Cherrystone had the duty to apply for admission to the foreclosure actions. Cherrystone did not have a right to tender funds to the tax collector without prior judicial authorization. Cherrystone's failure to follow the clear dictates of the Tax Sale Law and our court rules renders any redemption or attempted redemption invalid.

Because it did not seek to become a party to the actions before arranging for the redemption of the tax certificates in Simon and Grivas, Cherrystone will not be permitted to benefit from the purchase of the Ross and Smyth properties. But neither will we permit the property owners to suffer as a result of Cherrystone's procedural defaults. Accordingly, we conclude that the appropriate remedy is to impose constructive trusts on Cherrystone's rights under its contracts with the property owners. The certificate holders will be allowed to succeed to Cherrystone's rights, after reimbursing Cherrystone for any monies expended redeeming the tax certificates and for the purchase price of the properties. In the event the certificate holders decline to do so, the constructive trusts will be vacated and the contractual rights will revert back to Cherrystone.

[Simon v. Cronecker, 189 N.J. at 337-38.]

The Court thus concluded:

In conclusion, we hold that after the filing of a tax sale foreclosure action, a third-party investor who acquires a property interest subject to the action must intervene to establish that he has offered more than nominal consideration for the interest. With the court's approval, the investor then may redeem or assist in the redemption of the tax certificate. Without leave of court, the investor has no right to participate, directly or indirectly, in the redemption process.

In the cases before us, during the post-foreclosure complaint period, Cherrystone contracted to purchase defendants' properties and arranged for the redemption of the tax certificates without prior court approval. We will not permit Cherrystone to profit from transactions that violate the Tax Sale Law. As an equitable remedy, we will impose constructive trusts in favor of defendant property owners, granting plaintiffs the opportunity to assume Cherrystone's contractual rights. If plaintiffs choose not to do so, the contractual rights will revert back to Cherrystone. We therefore reverse the judgment of the trial court and remand for further proceedings consistent with this opinion.

[Id. at 338.]

The principles enunciated in Simon v. Cronecker, being an application of a straightforward reading and interpretation of the Tax Sale Law, do not constitute a new rule of law and are given retrospective application. Malinowski v. Jacobs, supra, 189 N.J. at 351-52. Therefore, the Simon v. Cronecker principles and remedy should be applied in this case.

Accordingly, although we affirm the order under review on the record presented, we remand for further proceedings. The trial court shall receive such additional evidence as it deems appropriate to determine whether Cherrystone Bay and Hunter are parties to a contract for the sale of the property for more than nominal consideration. If not, Cherrystone Bay shall have no rights in the action or to the property, and an order shall be entered so stating and confirming that the previously entered judgment shall remain in full force and effect. If a contract for more than nominal consideration is established, a constructive trust should be imposed on Cherrystone Bay's rights under the contract. Plaintiff will have the option of succeeding to Cherrystone Bay's rights for the purchase of the property from Hunter. If plaintiff exercises that right, it shall pay the required consideration, with appropriate credits and disbursements, in exchange for a deed from Hunter. If plaintiff declines to exercise the right, the constructive trust will be vacated and the contractual rights will revert back to Cherrystone Bay, which will be required to make the required payments in exchange for a deed from Hunter, and an order shall be entered vacating the previously entered judgment. Affirmed as modified and remanded.

 

At oral argument we directed the parties to file supplemental briefs addressing the impact of these decisions. We have received and considered those briefs.

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A-4622-05T1

March 30, 2007