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New Jersey Bankruptcy Court Finds Lien Held by Homeowners’ Association Is Subject to Modification Banner Image

New Jersey Bankruptcy Court Finds Lien Held by Homeowners’ Association Is Subject to Modification

Month: April 2017

New Jersey Bankruptcy Court Finds Lien Held by Homeowners’ Association Is Subject to Modification

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The United States Bankruptcy Court for the District of New Jersey recently overruled a creditor’s objection to the debtors’ proposed chapter 13 plan, rejecting the association’s argument that its claim is secured by a consensual lien and may not be modified pursuant to 11 U.S.C. 1322(b)(2).  Specifically, the Court found that a lien held by a New Jersey condominium or homeowners’ association can be either a statutory lien (subject to modification) or a consensual lien (not subject to modification) depending upon the circumstances presented.  In re Keise, 564 B.R. 255 (Bankr. D.N.J. 2017).  The matter was before the Court on a confirmation hearing on the chapter 13 plan filed by the debtors.  A homeowners’ association filed an Objection to Confirmation on grounds that the plan improperly sought to modify the association’s lien on the debtors’ property.  The association argued that its claim falls within the protections under 11 U.S.C. 1322(b)(2), which states that “a claim secured only by a security interest in real property that is the debtor’s principal residence”—i.e., a consensual lien—may not be modified.  The debtors argued that the lien is a statutory lien created by the New Jersey Condominium Act and is subject to modification.

The Court determined that, in contrast to the parties’ views that the association’s claim is enforceable by a single lien, the claim is secured simultaneously by two separate liens:  one consensual lien created by the parties’ agreement and one statutory lien created by the New Jersey Condominium Act.  N.J.S.A. 46:8B-1.  The Court noted that, in addition to support in New Jersey case law, the Condominium Act reinforces its conclusion that the association’s claim is secured by two separate liens and that N.J.S.A. 46:8B-21(f) contemplates a scenario where multiple liens may exist simultaneously to enforce a single claim.  The Court concluded that because the claim is supported by two liens, it is not secured only by a consensual lien.  Accordingly, it does not fall within the ambit of 1322(b)(2) and can be modified.  Therefore, the Court overruled the association’s objection and granted the debtor’s plan.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Williams v. McCloud: Legal Dependents and Child Support

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Where does generosity towards family members end and the legal obligation to support them begin? Who is a parent and when does voluntarily taking on that role have legal ramifications? These questions have been analyzed, but not resolved, by the New Jersey Appellate Division in the context of a child support modification application, in Williams v. McCloud*. In that case, the parties had one child together but never married. By agreement, the parties shared joint legal custody, with the plaintiff designated as parent of primary residence. The defendant paid child support to the plaintiff based upon their stipulated, respective incomes. Several years later, the defendant’s mother passed away, leaving behind a grandson (the defendant’s nephew), H.B., who had been in her care. H.B. ultimately moved in with the defendant. Shortly thereafter, H.B.’s parents signed a consent order granting the defendant sole legal and physical custody of H.B., without referencing any obligation of the defendant to support H.B., who was seventeen years old at the time.

The following year, the plaintiff sought an increase in child support. The defendant filed a cross-motion seeking additional parenting time and a reduction in child support, based on changed circumstances. Specifically, the defendant sought an other dependent deduction based on H.B. and the defendant’s obligation to support him. The other dependent deduction is a component of New Jersey child support guidelines and is designed to apportion a parent’s income to all of his or her legal dependents regardless of the timing of their birth or association. This avoids a first-in-time, first-in-right approach to multiple child support obligations.

The trial court found for the plaintiff and denied the defendant’s requests for relief, holding that the defendant was not legally obligated to provide H.B. with support. The defendant appealed, in part, on the basis that the court wrongfully failed to credit him with the other dependent deduction.

On appeal, the court looked to the definition of legal dependents from the appendix to the court rules, which includes adopted and natural children, but not stepchildren, unless a court has found that the stepparent has a legal responsibility for the stepchild. The court acknowledged that the defendant in this case assumed the status of in loco parentis (literally, in the shoes of a parent) once H.B.’s biological parents transferred custody to him. The court noted that a person standing in loco parentis may be precluded from disclaiming a previously assumed support obligation.  However, the court distinguished in loco parentis status from natural parenthood or adoption because it exists only as long as the surrogate parent and/or child desire that it exist.

The court grappled with whether a grant of custody necessarily creates an obligation to support, and ultimately remanded to the lower court to determine whether the defendant has a “legal responsibility” to support H.B. as a stepparent, thereby making H.B. a legal dependent per the guidelines. The court highlighted that the order granting custody of H.B. to the defendant made no mention of support.

This decision was arguably driven by the facts, as H.B. was already seventeen years old when the defendant was awarded custody.  It could hardly be disputed that a person granted sole legal and physical custody of an infant or small child has a “legal responsibility” to support that child. Moreover, the guidelines assert that stepchildren can be legal dependents where there is a legal responsibility for them, though a financial responsibility is not specified. Legal custody instills decision-making authority in a custodian and arguably creates a legal responsibility. Under that interpretation, physical custody or an express obligation to support may not even be a requirement to find that a person has a legal responsibility for a child sufficient to consider them a “legal dependent” for purposes of crediting the other dependent deduction in a separate child support dispute. However, because the impetus for the deduction is allocation of financial resources, it is likely that there must be some evidence of financial contribution before a person would be entitled to a reduction on a distinct child support obligation on these grounds.

Regardless of the prudence of the outcome in this case, it sheds light on the gray areas of the law with respect to the effect that quasi-parenting of family members may have on existing or future child support obligations.

* The opinion in Williams v. McCloud shall not constitute precedent and is not binding upon any court.

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California District Court Dismisses Complaint Alleging Wrongful Foreclosure for Lack of Standing on the Ground that a Mistake in Recording Renders an Assignment Void, Not Voidable

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The Northern District of California recently granted defendant bank’s motion to dismiss pro se plaintiffs’ complaint alleging wrongful foreclosure on jurisdictional grounds.  See Wyman v. First Am. Title Ins. Co., 2017 WL 512869 (N.D. Ca. Feb. 8, 2017).  In the case, plaintiffs obtained a loan from defendant bank secured by a deed of trust on plaintiffs’ residence.  In April 2011, defendant bank recorded an assignment of the deed of trust to transfer and convey the beneficial interest in the residence to a third-party bank in its capacity as trustee of a securitized trust, but defendant bank remained the servicing agent.  Plaintiffs commenced this action in November 2016, after a notice of default had been recorded against the property and then later rescinded.  In their complaint, plaintiffs alleged that defendant bank lacks beneficial interest in the deed, and therefore does not have standing to foreclose.  Plaintiffs’ causes of action all relate to the bank’s alleged securitization of the loan.  Specifically, Plaintiffs allege that the April 2011 assignment of the deed of trust was unlawfully recorded and that it therefore was “void and of no force and effect.”

In its motion to dismiss, defendant bank argued, among other things, that plaintiff lacks standing to challenge the bank’s right to foreclose because the foreclosure has not yet happened and, in any case, the defects alleged render the assignment “voidable” rather than “void”.  While the Court acknowledged that the “prevailing trend of decisional law” suggests that plaintiffs cannot pursue a pre-foreclosure suit in which they allege a void assignment, the court declined to render an opinion on this issue because it could dismiss the complaint on other grounds.  The Court held that plaintiffs failed to allege a defect which would render the assignment void, rather than voidable, as required for standing under state case law.  The Court found that “[a] mere mistake in recording is flexible and hardly voids an assignment.  Plaintiffs’ entire theory fails because the mistake rated no where close to void.”  The Court further held that “[t]he kind of technicality alleged here [which was “a mere typo”] is not sufficient to justify an exemption from the otherwise applicable bar on judicial intervention to the nonjudicial foreclosure process.”  Therefore, plaintiffs lacked standing to challenge the bank’s right to foreclose.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

A Reminder that Findings of Fact and Conclusions of Law Are Powerful Tools in Seeking Appellate Review in Family Law Cases

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Most practitioners that handle divorce, family law and complex custody cases know that it is axiomatic that to change, alter, or modify custody or parenting time, or to issue a parenting time sanction, the court must make findings of fact and conclusions of law.  In fact, all decisions made by the court from the bench in family cases that are not considered temporary trigger that requirement.   It is for that reason that practitioners must always be cognizant of the nature of the court’s determinations and whether a demand or reservation should be noted for the record requiring findings of fact.  It is a powerful tool to protect your client from error with regard to custody and parenting, alimony imputation, valuation and equitable distribution determinations.   Despite the obvious nature of the requirement, it occasionally  happens that a party is penalized in a post-judgment order and the record does not provide an adequate explanation.  Such a reminder can be seen in the recent New Jersey Appellate Division opinion of M.S. v. J.S, 20-2-3018 N.J. Super. (App.Div. 2017) per curiam.

In M.S. v. J.S., supra, the Defendant’s two-year therapeutic reunification process with his child through Skype was suspended without explanation, and it was ordered that all future parenting-time decisions were to be determined by drawing an adverse inference against the Defendant.  The Defendant was also ordered to pay counsel fees.  The only discernable reason for these orders was that the Defendant failed to produce discovery unrelated to parenting and custody and because the Defendant recorded one therapeutic session so that his therapist could help give him better guidance on how to interact with his daughters.  The Skype sessions were previously recorded under the direction of the court appointed expert.  There was no order, as pointed out by the Appellate Division, that prevented the sessions from being recorded.

The Defendant was incarcerated for two years for financial fraud, paid a fine and released on parole.  The Defendant lived continuously in England.  The Plaintiff lived in New Jersey with the parties’ two daughters.  The children were fifteen and seventeen years old.  At some point, given the distance over two shores and the Defendant’s incarceration, a previous restraining order was amended to include therapeutic reunification therapy between the Defendant and children.  The Appellate Division specifically noted that the conviction for white collar financial crimes had nothing to do with custody and parenting time.

In May 2015, the Superior Court entered an Order suspending the Defendant’s reunification therapy conducted over Skype, awarding counsel fees, and a monetary sanction of $10,000.  Additionally the Order required the Defendant to continue to provide information regarding his conviction for financial fraud nearly five years earlier.  Finally, and most importantly, the Order granted Plaintiff’s request, “that an adverse inference be inferred against the Defendant in determining future parenting time and future conditions of such parenting time. . .”  The entire Order, however, was entered without complete findings of fact and conclusions of law explaining the reasoning for suspending the therapeutic visitation or the awarding of counsel fees and monetary sanctions.  In reversing the entire Order, the Court stated, “The adverse inference in this case, imposed without explanation, preemptively sanctions defendant in his future interactions with his children.”

Rule 1:7-4, “Findings by the Court in Non-jury Trials and on Motions,” states in part:

(a) Required Findings. The court shall, by an opinion or memorandum decision, either written or oral, find the facts and state its conclusions of law thereon in all actions tried without a jury, on every motion decided by a written order that is appealable as of right, and also as required by Rule 3:29 The court shall thereupon enter or direct the entry of the appropriate judgment.

“Because of the frequency of the failure of trial judges to make findings, the Appellate Division Case Information Statement, Appendix VII, was amended to require information as to whether findings were made and if so whether oral or written.”  See Pressler & Verniero, Comment 1 to Rule 1:7-4.  

The requirement that the court make findings of fact to support its decisions is compounded in family cases, because every final decision is made by the judge, unless consented to by the parties. The requirement applies to nearly every decision made and ordered that is not considered interlocutory.  It can be said that post-judgment motions in the family part will likely trigger Rule 1:7-4, since the judge’s decision will likely be appealable as of right and is final, whereas pendente lite motions are generally interlocutory.   Various successful appellate attempts in family cases have been made due to the failure of the trial court to adequately explain its decision, on valuation of assets, division of lawsuit proceeds, deviations from child support guidelines and custody and parenting decisions.  See, e.g. Amato v. Amato, 180 N.J.Super. 210 (1981); Elrom v. Elrom, 439 N.J.Super. 424, 443 (App.Div.2015).

Ultimately, in M.S. v. J.S., the Appellate Division was concerned that not only were the therapeutic visits halted, purported discovery violations precipitated financial sanctions and future adverse inferences against parenting time, without any explanation as to the basis and vacated the entire eighteen paragraph Order.  To demonstrate the significance and power of Rule 1:7-4 as it applies to all aspects of family decisions and appeals:

Thus, the entire May 28, 2015 order is reversed. This effectively returns the parties to the visitation status quo, which implemented a therapeutic visitation program. Counsel shall promptly notify Dr. Dasher to reach out to the parties in order to begin anew in the manner, given the intervening two years, that he believes would be most productive after this long hiatus.

Every family law attorney will tell you that in their career they have experienced a final decision that they were not prepared for and that the basis or rationale was not provided.  Most often it is regarding a minor or insignificant issue.  Family part judges are often inundated and our courts are over-taxed, causing the court to make quick decisions at times.  In these situations it is incumbent to politely remind and request the court to provide a record of the basis for the decision.  It is also important to be reminded that where it does not occur and a decision is made without an adequate basis, a failure to make findings of fact is solid ground for successful appellate review.

New York Appellate Court Affirms Dismissal of Complaint Against Title Insurance Company for Defalcated Escrow Funds

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The Second Department of New York’s Appellate Division recently affirmed a lower court’s decision that a title insurance company was not responsible for its policy-issuing agent’s defalcation of escrow funds.  See La Candelaria E. Harlem Cmty. Ctr., Inc. v. First Am. Title Ins. Co. of N.Y., 146 A.D.3d 473 (2d Dept. 2017).  In the case, plaintiff is a nonprofit organization that had failed to pay its city property taxes and owed approximately $500,000 in tax liens.  Plaintiff decided to sell its real property to avoid foreclosure and, pursuant to nonprofit law, sought and obtained a court order allowing the sale of the property.  Pursuant to the order, plaintiff was required to deposit $300,000 of the sales price in its then-attorney’s escrow account “pending the further order of the Court upon a showing by [plaintiff] that it has identified a suitable building that it proposes to purchase in furtherance of its charitable purposes.”  At the closing, plaintiff entered into an escrow agreement with defendant’s policy-issuing agent through which they agreed that the $300,000 would be placed in the agent’s escrow account until plaintiff’s new attorney could obtain a new court order authorizing him to hold the funds.  Six years later, plaintiff claimed to have called defendant and spoken with a customer service representative who allegedly confirmed defendant was holding the escrowed funds.  Three years later, plaintiff called defendant seeking the escrowed funds.  After investigating the request, defendant discovered the agent had stolen the funds, and plaintiff initiated this lawsuit against defendant.

On defendant’s motion for summary judgment, the trial court dismissed the complaint.  On appeal, the Second Department affirmed.  First, it held that the agent only had actual authority to clear title defects and issue title insurance policies, and any escrow agreements it entered into with plaintiff were not binding on defendant.  Second, it held that plaintiff’s alleged conversation with defendant in which defendant’s employee confirmed that defendant was holding the escrowed funds did not ratify the escrow agreement because plaintiff had no evidence that she was authorized to bind the company to the agreement.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Illinois Appellate Court Affirms Bank’s Right to Foreclose Despite Allegedly Forged Deed

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The Appellate Court of Illinois recently affirmed a lower court’s decision to grant a lender’s motion for summary judgment to foreclose on a property despite an allegedly forged deed, based on the doctrine of equitable subrogation.  See Deutsche Bank Nat'l Trust Co. v. Payton, 2016 IL App (1st) 160305-U (Ill. App. 2017).  In the case, the owners of a residential property fell behind on their mortgage payment and entered into an agreement with a “foreclosure rescue” entity in an attempt to save their home.  Soon thereafter, a deed purportedly containing the owners’ signatures was executed, transferring the property to defendants.  Defendants obtained a mortgage on the property, the proceeds of which paid off the owners’ prior mortgages.  Further, the excess proceeds allegedly went to the owners.  Defendants eventually defaulted, and plaintiff brought a foreclosure action.  The owners intervened in the action, arguing that the deed to defendants was forged and they never transferred title to the property.  They further argued that plaintiff lacked standing to foreclose because it did not have any mortgage with the owners and therefore could not foreclose out the owners’ alleged interest in the property.   Plaintiff moved for summary judgment and the lower court granted the motion.

On appeal, the appellate court affirmed.  First, it held plaintiff was equitably subrogated to the position of the owners’ mortgages on the property because there was no dispute that the proceeds from plaintiff’s mortgage had paid them off.  Accordingly, “the [owners’] interest in the subject property was subordinate to [plaintiff’s].”  Second, it found that plaintiff had an equitable right to foreclose out the owners’ alleged interest in the property, even if it did not have a written mortgage with the owners.  “[E]ven if [defendants] acquired the subject property through a forged deed and, even if the bank and its assignor had no written mortgage with [the owners], [plaintiff’s] assignor acquired standing when it paid off [the owners’] mortgages and [plaintiff] as trustee, had a right to predicate its foreclosure action against [the owners] on the fact that it was the legal holder of [the owners’] indebtedness."

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

Nuts and Bolts of Supplying Financial Documents in Post-Judgment Motions

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The New Jersey Appellate Division recently affirmed a lower court ruling on a post-judgment motion in which the lower court denied an obligor’s application to modify child support, where proper financial documentation was not supplied with the motion. This decision highlights some key components of the nuts and bolts of filing such post-judgment motions.  

In D.L. v. W.L., a seventy-four year old payor sought a reduction in his child support obligation for his permanently disabled, fifty-year-old son. The moving party was a licensed psychologist with a solo practice, who had been paying approximately $17,000 per year in child support and 80% of unreimbursed medical expenses for his disabled adult son since 2006. This support obligation was calculated in 2006 based on the payor’s stipulated income of $150,000.

In making this application, the psychologist claimed that managed care had precipitated a permanent decline in his income from $150,000 in 2006 to $36,000 in 2014. The payor asserted that managed care reduced both the amount of money earned per session and the number of appointments each patient could attend. However, in violation of New Jersey Court rule 5:5-4(a), the payor did not supply the court with his 2006 Case Information Statement  (CIS) and did not isolate his individual expenses from those of his family (including his second wife and teenage daughter). He did, however, provide his 2014 tax return.

The trial court denied his application, noting that a self-employed obligor’s income should be viewed more expansively because he is in a better position to present an unrealistic snapshot of his financial circumstances than a W-2 wage earner. Comparing his current CIS with his 2014 tax return, the trial court found some discrepancies in his stated income of $36,000 and his business and personal expenses. Critically, the trial court found that determining changed circumstances necessarily entails knowing the starting point from which to measure the change. In this case, therefore, failure to provide his 2006 CIS or at least a transcript of the 2006 proceedings proved fatal to the payor’s application. As an aside, the trial court noted that the payee was under no obligation to supply financial documentation to the court until the payor met his burden to prove a change in circumstances.

This decision highlights several important practical considerations in filing post-judgment motions. First, an applicant should supply all required documentation to the court, including all prior Case Information Statements and an accurate, updated CIS.  Without these documents or at least an explanation as to why they cannot be produced, according to D.L. v. W.L., an application is all but dead on arrival. Second, self-employed obligors should take pause before filing a post-judgment application and ensure that all the required financial documentation supplied paints a consistent picture of the payor’s financial circumstances. While a W-2 may speak for itself, payors that don’t have the benefit of such black-and-white income documentation must ensure the documentation submitted with the application provides the court with enough information to make a credible and substantiated determination as to current income. 

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Pennsylvania Appellate Court Denies Title Coverage After Settlement Agent’s Misappropriation of Funds

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The Superior Court of Pennsylvania recently affirmed a lower court’s denial of a lender’s claim for coverage from a title insurance company after a settlement agent misappropriated the closing funds and failed to pay off the prior mortgages on the insured property.  See Northwest Sav. Bank v. Fid. Nat’l Title Ins. Co., 2017 WL 253080 (Pa. Super. Ct. 2017).  In the case, plaintiff lender entered into an agreement with the borrowers to refinance two mortgages encumbering their property.  Before the closing, the settlement agent issued a title commitment which required plaintiff to discharge the two prior mortgages in order for the title insurance policy to be effective.  The settlement agent had a contract with defendant title insurance company that limited the settlement agent’s role to issuing title insurance commitments and policies, and the contract expressly prohibited the agent from receiving escrow funds in defendant’s name.  At the closing, plaintiff disbursed its funds to the agent and instructed it to satisfy the prior loans.  The agent then issued the title insurance policy that did not name the prior mortgages as exceptions.  Four years later, plaintiff discovered that the agent misappropriated the funds and never discharged the prior mortgages.  When the prior mortgagees commenced their foreclosure actions, plaintiff sought coverage from defendant, which defendant denied.  Plaintiff then instituted this action against defendant.  The trial court granted defendant’s motion for summary judgment and plaintiff appealed.

On appeal, the Court affirmed.  First, it agreed with defendant that defendant had only engaged the agent to issue the title commitment and policy, and that the agent’s misappropriation of escrow funds occurred while it was acting as plaintiff’s agent.  Second, it held that plaintiff’s claim was barred under Exclusion 3(a) of the title insurance policy, which excludes coverage for defects “created, suffered, assumed or agreed to by the insured claimant.”  Although the Court acknowledged that plaintiff had not intended to cause this title defect, it found that, between two innocent parties, plaintiff had more responsibility for creating the defect because it was the one who selected the agent to handle its funds.  Finally, the Court also held that the claim was barred under Exclusion 3(e), which excludes any loss that would not have been sustained if the insured claimant had paid value for the insured mortgage.  Here, because the funds were not properly paid to the prior mortgagees, the Court found that the plaintiff had not paid value.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

New York Federal Court Dismisses Bank’s Foreclosure Complaint for Lack of Subject Matter Jurisdiction, Finding Plaintiff Failed to Properly Establish Diversity of Citizenship as Trustee

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The United States District Court for the Northern District of New York recently denied plaintiff bank’s motion for default judgment in a foreclosure action and dismissed the complaint for lack of subject matter jurisdiction, finding that plaintiff failed to sufficiently allege the existence of diversity of citizenship to establish subject matter jurisdiction.  See U.S. Bank Trust, N.A. v. Monroe, 2017 WL 923326 (N.D.N.Y. March 8, 2017).  In the case, plaintiff filed its complaint in federal court, alleging nonpayment of a mortgage by defendant and asserting subject matter jurisdiction based on diversity of citizenship.  Plaintiff, a national bank, alleged that it is a citizen of Delaware based on having a principal place of business in Delaware and that defendant is a citizen of New York.  Plaintiff brought the action on behalf of a Master Participation Trust, for which plaintiff bank serves as trustee.  Defendant failed to appear in the action and the Clerk of the Court noted his default.  Plaintiff subsequently moved for default judgment.  The Court denied the motion on multiple grounds.

First, it found that plaintiff’s allegation about its principal place of business was insufficient to establish diversity, and noted that the Second Circuit has expressly held that the principal place of business is not to be considered when determining the citizenship of a national banking association.  See OneWest Bank, N.A. v. Melina, 827 F.3d 214, 218–21 (2d Cir. 2016) (holding that a national bank is only a citizen of the state designated by its articles of association as the location of its main office).  Plaintiff’s failure to provide the location of its main office meant that it had failed to properly allege its own citizenship.  Second, the Court held that plaintiff was only the nominal plaintiff in the action because it brought the complaint on behalf of a trust, and that the trust’s citizenship controls for diversity purposes.  Plaintiff failed to include any allegations concerning the type of trust at issue, plaintiff’s degree of control over the trust assets, or, alternatively, the citizenships of the trust’s beneficiaries, all of which would be necessary to determine the trust’s citizenship.  While the Court allowed plaintiff leave to file a motion to amend its complaint to address these deficiencies, it was harshly critical of plaintiff’s counsel for not clearly setting forth plaintiff’s basis for diversity jurisdiction.

For an analysis on the Melina decision, please click here.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

New Jersey Superior Court Holds Condominium Association Was Not Entitled to Redeem Tax Sale Certificate on Condominium

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The Superior Court of New Jersey, Hudson County, Chancery Division-General Equity Part recently held that a condominium association’s attempt to redeem a tax sale certificate on a condominium on which it held a lien was not valid because it was neither a mortgagee nor the owner of the property.  See JNH Funding Corp. v. Ayed et al., F-8704-14 (N.J. Ch. Div. March 21, 2017).  In the case, plaintiff purchased a tax sale certificate on the subject property in 2006.  In 2013, the association recorded a lien for unpaid assessments against the property.  In 2014, both parties initiated foreclosure actions and in September 2016, after plaintiff was awarded final judgment, the parties’ attorneys began discussing whether one party was willing to pay off the other party’s lien.  Plaintiff’s attorney later admitted that he was negotiating under the mistaken impression that the association had the right to redeem the tax sale certificate.  When negotiations reached a standstill, the association redeemed the certificate.  Plaintiff refused to accept the payment and refused to surrender the certificate.  The association was then awarded final judgment in its foreclosure action and, in February 2017, the property went to a sheriff’s sale in the association’s action and the association purchased the property.  Plaintiff claimed that it was not notified of the sale.

Plaintiff then filed this motion to vacate the association’s redemption of the tax sale certificate, arguing that the redemption is null and void because the association is not eligible to redeem the certificate under N.J.S.A. 54:5-54.  Under the statute, either a mortgagee or the owner has the right to redeem the certificate.  The association opposed the motion, arguing that a foreclosing condominium association is essentially a mortgagee under the statute and, regardless, that the motion is moot because the association is now the owner of the property.  In support of its mootness argument, the association cited Caput Mortuum, L.L.C. v. S & S Crown Servs., Ltd., 366 N.J. Super. 323, 331 (App. Div. 2004), in which the Appellate Division held that the question of whether a judgment creditor had the right to redeem was rendered moot after the creditor obtained title to the property and was allowed to redeem as the owner.

After a hearing, the Court granted plaintiff’s motion.  First, it held that a foreclosing association is not a mortgagee under the statute.  It found that courts should interpret N.J.S.A. 54:5-54 narrowly, and “it would be improper to declare a condominium association lien holder to be a mortgagee, . . . as both have definitively different legal definitions.”  Second, it held that the association’s acquisition of title in February 2017 did not render the issue moot.  It distinguished Caput Mortuum because there, the creditor had never attempted to redeem the tax sale certificate, and the issue of whether it could do so became moot once it became the owner.  Here, the association redeemed the certificate before becoming the owner.  Thus, the Court rejected the association’s argument and held that its September 2016 redemption was null and void because it was not the owner at that time.  However, the Court noted that it “does not make any finding on [the association’s] legal ability to redeem the tax sale certificate at any point in the future[.]”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.

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