Opinion
DOCKET NO. A-3104-14T2
04-13-2016
ROBERT DEL VECCHIO, TRUSTEE OF THE ROBERT DEL VECCHIO PENSION TRUST, Plaintiff-Appellant, v. VIVIAN CRESPO, Defendant-Respondent, and STATE OF NEW JERSEY, Defendant.
Keith A. Bonchi argued the cause for appellant (Goldenberg, Mackler, Sayegh, Mintz, Pfeffer, Bonchi & Gill, attorneys; Mr. Bonchi, of counsel and on the brief; Matthew S. Maisel, on the briefs). Robert A. Skoblar argued the cause for respondent.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Sabatino, Accurso and Suter. On appeal from the Superior Court of New Jersey, Chancery Division, General Equity, Hudson County, Docket No. F-3069-13. Keith A. Bonchi argued the cause for appellant (Goldenberg, Mackler, Sayegh, Mintz, Pfeffer, Bonchi & Gill, attorneys; Mr. Bonchi, of counsel and on the brief; Matthew S. Maisel, on the briefs). Robert A. Skoblar argued the cause for respondent. PER CURIAM
In this tax foreclosure matter, plaintiff Robert Del Vecchio, as Trustee of the Robert Del Vecchio Pension Trust, appeals the Chancery Division's January 30, 2015 order rejecting his motion to bar defendant Vivian Crespo's redemption of a tax certificate he had previously purchased at auction. Plaintiff objected to the redemption because Crespo, the property owner, had borrowed from a third party the funds to pay off the amount due without that third party intervening in the foreclosure action. Under the distinctive circumstances presented here, we affirm the trial court's determination that no intervention was required and sustain its entry of final judgment in Crespo's favor.
The record reflects that Crespo is a divorced mother who resides with her three minor children in the subject property in North Bergen. Crespo's ex-husband ceased paying the municipal taxes on the property, and Crespo was apparently unable to pay them herself out of her modest income. As a result, the 2008 and 2009 municipal taxes on the premises became delinquent. The municipality accordingly issued a tax sale certificate.
At the ensuing auction, plaintiff acquired the tax sale certificate for $13,219.98. The certificate was issued at an interest rate of 0% along with a $17,000 premium, suggesting significant bidding activity took place during the auction. See N.J.S.A. 54:5-32 (stating that the bidder at the tax certificate auction accepting the lowest rate of return wins the auction and if the rate falls to 0%, the bidder offering the highest premium wins).
Over the years that followed, the amount to be paid by Crespo to redeem the certificate accumulated to nearly $90,000 after subsequent property taxes accrued that were subject to a statutory 18% annual interest rate. See N.J.S.A. 54:5-6 (declaring property taxes a continuous lien to which subsequent tax accruals are added); N.J.S.A. 54:4-67(1) (declaring that delinquent property taxes accrue interest at a rate of 18% per annum on amounts over $1500).
In January 2013, plaintiff, as the certificate holder, filed suit to foreclose Crespo's right of redemption. After processing by the Office of Foreclosure, an order was entered on August 28, 2014, setting October 14, 2014 as the last day for Crespo to redeem and retain the property. The final payoff amount required to redeem was determined to be $87,132.90.
According to Crespo, she attempted to obtain a mortgage loan to pay the redemption amount. She was unable to do so at first because of a pending lawsuit related to her divorce that had placed a cloud on title. She apparently later received an approval for a mortgage loan, but was unable to meet that lender's conditions in time to close on the loan before the redemption deadline.
Informed of Crespo's dire circumstances, a brother of her attorney decided to step in and provide what is described as a "bridge loan" to Crespo to enable her to pay off the redemption amount until she secured a mortgage loan or other funding from another lender. According to Crespo's unrebutted certification, the loan was for $100,000 and it was agreed to be interest-free. In addition, Crespo attested that the lender did not ask her to sign a promissory note or mortgage. The $100,000 in loan proceeds were transferred into the attorney's trust account, and then $94,996.52 of it was tendered to pay off the outstanding tax certificate.
Plaintiff has not argued that the attorney's actions in obtaining the altruistic aid of his brother was improper. Plaintiff instead maintains that the brother, as a third-party lender, was required to intervene in the foreclosure action before Crespo could redeem.
While the appeal was pending, Crespo moved to supplement the record with a submission documenting that she has since obtained other financing and fully paid back the $100,000 loan. Although plaintiff initially opposed that motion to supplement, at oral argument on the appeal his counsel agreed to withdraw the objection. We have thus considered the supplemental materials and vacate this court's prior order denying supplementation.
Plaintiff objected to the redemption, asserting that the lender was acting as an investor in the property and thus was required to intervene in the foreclosure action pursuant to Simon v. Cronecker, 189 N.J. 304 (2007). The Chancery Division judge, the Honorable Hector R. Velazquez, rejected plaintiff's contention, finding no obligation for the lender to intervene under these particular circumstances where the lender was serving, in essence, as an altruistic life-line rather than as a profit-seeking financier. Judge Velazquez found it significant that the lender was not claiming any interest in the property:
[T]he record here demonstrates only that [the lender] has agreed to loan money to Ms. Crespo with no conditions attached and with no intent to obtain an interest in the subject property now or in the future. [The lender] is neither a third party investor who "has acquired a contractual interest in the subject property," nor a person not eligible to redeem who is "sending one who is eligible to pay the collector." The Tax Sale Law clearly does not prohibit a property owner from seeking or obtaining financing to redeem a sales tax certificate and reclaim her property.Observing that the tax sale laws protect both the interest of the government in collecting delinquent taxes and the interest of a homeowner in reclaiming his or her land, the judge concluded that:
Plaintiff's investment should not end up in a windfall profit from foreclosure since the property owner has the absolute right to secure a private loan to finance redemption. As indicated previously the tax sale laws were not designed to insure a windfall for a certificate holder. It was designed in part to give a property owner the opportunity to redeem the certificate and reclaim his land.
In this regard, the certificate holder's interest must be subordinate to the property owner's right of redemption. Accordingly, the motion to bar redemption and to enter final judgment is denied.
Plaintiff now appeals, maintaining that the trial court erred in failing to require the lender to intervene as a precondition of Crespo's redemption. We affirm, substantially for the thoughtful reasons expressed in Judge Velasquez's opinion. We offer the following additional comments.
We agree with plaintiff that the Supreme Court in Cronecker interpreted the redemption statute, N.J.S.A. 54:5-98, to generally require that a person who seeks to redeem a tax certificate, whether directly or indirectly, intervene in the foreclosure action to allow for the protection of property owners through judicial oversight of the foreclosure process. Cronecker, supra, 189 N.J. at 335-36. The Court reasoned that this interpretation gives effect to the Legislature's goal of protecting distressed property owners from predatory third-party investors, who might seek to acquire the homeowner's property interest for "nominal value" and redeem the land for themselves. Id. at 323-24, 336. Although the Court observed that the conduct of the third-party investor in Cronecker did not violate "a social policy embodied in the Tax Sale Law," it found that the investor was still required to intervene in the foreclosure case to permit judicial oversight of the transaction because it obtained a property interest. Id. at 328, 337.
This court later applied Cronecker's holding to a situation involving close family friends of a homeowner who had lent the owner money that was used to redeem a tax certificate. Phoenix Funding, Inc. v. Krute, 403 N.J. Super. 261, 264-65 (App. Div. 2008). Notably in Krute, the friends were interested in acquiring the property themselves from the homeowner, who herself was looking to dispose of the house, which had fallen into disrepair. Id. at 265. The friends purchased the property shortly after it was redeemed. Id. at 264. We held in Krute that "the obligation to intervene extends to one who redeems 'indirectly' through an arrangement of [this sort,]" reasoning that Cronecker "directs courts not to overlook the reality of the transaction" in determining whether a third party sought to redeem a tax certificate "indirectly" through the homeowner. Id. at 267.
The Supreme Court in Cronecker made clear that only those parties who acquire or intend to acquire a property interest by facilitating redemption need to intervene in the tax foreclosure action. The Court explicitly and repeatedly discussed "interested" third parties throughout its opinion. Its reasoning was premised on the need to protect property owners from such third parties because of the ownership interest such third parties seek to acquire:
In the post-foreclosure complaint stage, the requirement that a person, directly or indirectly, seeking to redeem a tax certificate "be admitted as a party to such action" permits judicial oversight of the adequacy of consideration offered for the property interest.
By forbidding an interested investor, who is not a party to the foreclosure action from "indirectly" seeking redemption, we intend to interdict the myriad machinations that a creative mind might devise to elude the Tax Sale Law.
[Cronecker, supra, 189 N.J. at 336 (emphasis added) (citations omitted).]
Plaintiff's assertion that a third-party lender must intervene, regardless of the retention of any property interest, contradicts both the Court's reasoning, as well as the public policy and legislative intent of the statute. The specific evil the Legislature sought to address through N.J.S.A. 54:5-98 (and the related provision in N.J.S.A. 54:5-89.1) are the acts of predatory third parties who seek to take advantage of distressed property owners. Cronecker, supra, 189 N.J. at 323-24, 336. A third party who merely grants an unsecured loan or conveys a gift to the property owner without any expectation of acquiring an interest in the property does not implicate the Legislature's concern.
This provision requires that interested parties seeking to intervene in the foreclosure action have acquired their interest for more than "nominal consideration." --------
Equally important, interpreting N.J.S.A. 54:5-98 so broadly as to encompass such uninterested, non-investing third parties would harm property owners by further limiting their ability to finance a redemption. A family member would likely be less inclined to assist a property owner, and no reasonable lender would lend to such a property owner, if those parties were required to participate in litigation.
Moreover, plaintiff's broad interpretation of the statute and Cronecker could have undesirable consequences in making more cumbersome, and thereby discouraging, efforts by non-investor third parties to provide homeowners in distress with financial assistance. For instance, under plaintiff's expansive concept of an "indirect" redemption, a property owner's employer would be required to intervene in the tax foreclosure case prior to providing, say, the homeowner an advance on pay, or granting a 401(k) loan, if those funds were used to remit the amount owed to pay off the certificate. So would consumer finance companies granting unsecured personal loans to homeowners who are trying to avoid foreclosure. We do not believe the Supreme Court envisioned such consequences in Cronecker.
Plaintiff's reliance on our opinion in Krute as supporting a contrary conclusion is misplaced. The issue in Krute was whether Cronecker's holding applied to close friends or family members of a property owner when those parties intended to acquire the property after redemption. Krute, supra, 403 N.J. Super. at 266-68. As in Cronecker, the holding in Krute was dependent on the interest the third party had in acquiring the subject property, though that interest was not contractual. Ibid. Here, as the record shows, the lender kindly provided an interest-free bridge loan to Crespo without demanding any interest in the property. This sort of altruistic gesture, which enabled Crespo to continue residing in her home with her children during a time of post-divorce upheaval, should not be discouraged by a rigid or overbroad reading of the applicable case law. The "reality of the transaction" plainly does not involve the predatory evils that the Court was concerned with in Cronecker, supra, 189 N.J. at 267.
We recognize that there could be situations where predatory investors attempt to conceal or mislead the court and the certificate holder into believing that the funds provided for redemption have no strings attached. However, there is absolutely no evidence of such untoward conduct here. Indeed, the bridge loan has now been paid off.
We also reject plaintiff's argument that he was entitled to discovery before the final judgment was entered against him. Plaintiff did not serve any discovery requests or seek the court's assistance in obtaining discovery until he raised the subject provisionally in a December 1, 2014 supplemental certificate when responding to Crespo's motion opposition. If such discovery concerning the source of the funds was so vital to plaintiff, it could have been requested earlier when plaintiff learned in October 2014 that the redemption funds had been paid. Even if a more timely discovery request had been made, the sworn certifications provided by defendant to the trial court provided a sufficient basis for the court's finding that the lender here was not retaining an interest in the property.
Although we envision some situations in which such discovery would be appropriate in these summary actions, the court did not misapply its discretion in this particular case in rejecting plaintiff's eleventh-hour provisional demand. See Pomerantz Paper Corp. v. New Cmty. Corp., 207 N.J. 344, 371 (2011) (noting the wide discretion afforded to trial judges on discovery matters). Moreover, since the bridge loan has now been paid off in full, the demand for discovery is at this point moot.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION