In the recent matter of Mo Geo LLC v. City of New Brunswick, No. A-2019-21, LEXIS 436 (App. Div. Mar. 23, 2023), the New Jersey Appellate Division (“the Court”) issued a March 23, 2023 opinion addressing the proper method of assessing tax sale certificates and, interestingly, holding that where a tax sale certificate expressly provides that it carries a specific redemption interest rate, in the event the tax sale is set aside, this rate will not control and the purchaser will instead only be entitled to the potentially much lower post-judgment interest rate provided for in Rule 4:42-11(a).

Background

This matter begins on December 15, 2015, on which date Plaintiff Mo Geo, LLC (“Plaintiff”) purchased two tax sale certificates (“the Certificates”) for unpaid sewer and water charges that had been assessed against the homeowner’s association of a condominium building owned by Defendant the City of New Brunswick (“New Brunswick”).  The Certificates stated that they carried a redemption interest rate of eighteen percent and were formally recorded on January 28, 2016.

In July 2020, Plaintiff notified New Brunswick that the Certificates were invalid, contending that they should have been assessed against the individual owners of the specific condominium units that had incurred the unpaid charges, instead of against the homeowner’s association in an aggregate amount.  In September 2020 Plaintiff filed suit, seeking to recover the purchase price it had paid for the Certificates, the value of all taxes and fees paid, interest at eighteen percent per annum as provided for within the Certificates, attorney’s fees, and court costs.

Upon the close of discovery, Plaintiff and New Brunswick filed dueling summary judgment motions against one another.  Plaintiff ultimately prevailed, with the trial court holding that the Certificates were invalid, rejecting laches and equitable estoppel claims raised by New Brunswick, and explaining that Plaintiff “should not suffer the wrong of purchasing . . . an invalid lien, [] that was sold by [New Brunswick] as a valid lien[,] without any remedy.”  The trial court thereafter awarded Plaintiff its sought-after damages, calculated at the requested eighteen percent interest rate contained in the Certificates.

New Brunswick appealed, electing not to challenge the holding that the Certificates were defective, and instead asserting only that the trial court had erred by: (1) failing to apply the doctrines of laches and estoppel; and (2) by granting interest at eighteen percent rather than using the adaptable formula for post-judgment interest rates codified in Rule 4:42-11(a), which calls for the interest rate to be calculated as “the average rate of return, to the nearest whole or one-half percent, for the corresponding preceding fiscal year . . . of the State of New Jersey Cash Management Fund.”

In ruling upon New Brunswick’s first claim, the Court began by confirming that the Certificates had indeed been invalidly assessed, as N.J.S.A. 46:8B-19 of the New Jersey Condominium Act and its applying case law clearly mandated that these charges “should have been allocated to the respective unit owners rather than asserted in an aggregate amount against the [Homeowner’s] Association.”  The invalidity of the assessment in turn served to void both the subsequent tax sale and the resulting Certificates, necessitating that Plaintiff receive a “refund of the purchase price.”  New Brunswick’s equitable claims were incapable of altering this outcome, as Plaintiff’s suit had been filed within the governing six-year statute of limitations, and thus, in reliance upon the guidance issued by our Supreme Court in Fox v. Millman, 210 N.J. 401, 412 (2012), the Court determined that it was inappropriate to “utilize an equitable remedy to foreclose a claim otherwise governed by a fixed statute of limitations and otherwise filed in compliance” with that deadline.

As to New Brunswick’s second claim, the Court observed that where a tax sale is set aside, the controlling statute, N.J.S.A. 54:5-43, provides that the municipality is to refund the purchaser for their costs along with an award of “lawful interest.”  While the trial court awarded Plaintiff “lawful interest” using the eighteen percent rate contained in the language of the Certificates, the Court held this outcome was erroneous, and that the “lawful interest” rate for “post-judgment interest” should have been calculated using the formula contained in Rule 4:42-11(a).  Accordingly, the matter was remanded back to the trial court “to calculate and award interest” pursuant to this holding.

Takeaways

This opinion makes clear that any would-be tax certificate purchaser should take care to independently confirm that the assessments they are purchasing were put forth against the proper parties, as in the event the tax sale is set aside, the purchaser could, through no fault of their own, be subject to a significantly lower interest rate than they originally bargained for.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, James Mazewski at jmazewski@riker.com, Kevin Hakansson at khakansson@riker.com or Kori Pruett at kpruett@riker.com.