CASINO REINVEST. DEV. AUTH. v. Cohen

• Decision Date: 30 September 1998
• Citation: 321 N.J. Super. 297,728 A.2d 868
• Court: New Jersey Superior Court
• Parties: CASINO REINVESTMENT DEVELOPMENT AUTHORITY, a public corporate body of the State of New Jersey, Plaintiff, v. Norman COHEN; Security Savings and Loan Association; Security Savings Bank, SLA; Bank of America National Trust & Savings Association (now appearing as Post Mortgage, Inc.); Resolution Trust Corporation as Conservator or Receiver for Security FSB; State of New Jersey; Marvin H. Sunshine, Esq.; Eva Ingram; Bank Leumi Trust Company of New York American Express Travel Related Services Company, Inc.; City of Atlantic City; M.D. Sass Municipal Finance Partners; First Fidelity Bank, N.A.; Atlantic City Municipal Utilities Authority; June Cohen; Matthew J. Scola, Esq.; and McDonald's Corporation, Defendants.

728 A.2d 868

321 N.J. Super. 297

CASINO REINVESTMENT DEVELOPMENT AUTHORITY, a public corporate body of the State of New Jersey, Plaintiff, v. Norman COHEN; Security Savings and Loan Association; Security Savings Bank, SLA; Bank of America National Trust & Savings Association (now appearing as Post Mortgage, Inc.); Resolution Trust Corporation as Conservator or Receiver for Security FSB; State of New Jersey; Marvin H. Sunshine, Esq.; Eva Ingram; Bank Leumi Trust Company of New York American Express Travel Related Services Company, Inc.; City of Atlantic City; M.D. Sass Municipal Finance Partners; First Fidelity Bank, N.A.; Atlantic City Municipal Utilities Authority; June Cohen; Matthew J. Scola, Esq.; and McDonald's Corporation, Defendants.

Superior Court of New Jersey, Law Division, Atlantic County.

Decided September 30, 1998.

Ernest Schoellkopf, Roseland, for plaintiff (Connell Foley & Geiser, attorneys).

Adam Greenberg, Voorhees, for defendant M.D. Sass Municipal Finance Partners (Honig & Greenberg, attorneys).

Beverly Graham-Foy, for defendant City of Atlantic City.

Howard Drucks, Atlantic City, for defendant Post Mortgage Corp. (Horn Goldberg Gorny Plackter Weiss & Perskie, attorneys).

James Lubin, for FDIC.

Harry Franks, for Lonnie Griffin (McGahn Friss Franks & Tripician, Northfield, attorneys).

WILLIAMS, A.J.S.C.

This matter comes before the court on motions to withdraw funds on deposit with the Superior Court Trust Fund Unit in the underlying condemnation action. There are insufficient funds on deposit to satisfy all claims.

M.D. Sass Municipal Finance Partners (Sass) asserts a claim pursuant to N.J.S.A. 54:5-6, based on its purchase of a tax sale certificate and payment of subsequent taxes. Post Mortgage Corporation (Post) is the holder of two mortgages which were subject to receivership by the Resolution Trust Corporation (RTC). Post disputes the validity of the Sass claim asserting that, pursuant to 12 U.S.C.A. 1825(b)(2), no lien for unpaid real property taxes attached to the property. If the Sass claim is valid it will have a priority over the Post claim. A brief recitation of the undisputed facts is necessary.

In August 1979, Norman Cohen and his wife purchased the property which is the subject of the condemnation action. On December 17, 1986, the Cohens executed a first mortgage on the property in favor of Security Savings & Loan Association in the amount of $1,050,000.00. Thereafter, on July 6, 1992, they executed a second mortgage in favor of Security Savings & Loan Association in the amount of $750,000.00.

On December 4, 1992, Security Savings & Loan was placed into federal receivership under the RTC. The RTC, acting as conservator/receiver for Security Savings & Loan Association, assigned both mortgages to Bank of America in September 1993. On February 8, 1996, Bank of America assigned the mortgages to RTC Mortgage Trust (a private enterprise) and on June 26, 1996, RTC Mortgage Trust assigned the two mortgages to National Loan Investors. On June, 30, 1997, National Loan Investors assigned the mortgages to Post.

While all of this was occurring, taxes on the property were not kept current. On September 18, 1994, a tax sale was held and Sass purchased the tax sale certificate in the amount of $15,986.32. Thereafter, on December 30, 1994, Sass paid additional taxes due in the amount of $13,539.48.

The underlying condemnation action was initiated on August 15, 1995. A declaration of taking was filed on October 24, 1995, pursuant to which the Casino Reinvestment Development Authority (CRDA) deposited $515,000.00 with the Clerk of the Superior Court. The present Sass motion is one of a number of withdrawal motions which have been presented to the court.

The FDIC (as successor to the RTC) was not initially joined as a party to the condemnation action. However, because its interests could be affected by disposition of the Sass motion to withdraw funds, the court has permitted its joinder. For purposes of this decision the FDIC and RTC shall be treated as the same entity.

The resolution of the dispute herein requires interpretation of 12 U.S.C.A. 1825(b) and applicable New Jersey tax law.

During the period of the RTC receivership (December 4, 1992 to September 1993) the New Jersey Tax Sale Law at N.J.S.A. 54:5-6 provided as follows:

Taxes on land shall be a lien on the land on which they are assessed on and after the first day of January of the year for which the taxes are assessed and all interest, penalties, and costs of collection which thereafter fall due or accrue shall be added to and become a part of such lien.

The statute was amended effective May 12, 1994, to provide:

Taxes on lands shall be a continuous lien on the land on which they are assessed and all subsequent taxes, interest, penalties, and costs of collection which thereafter fall due or accrue shall be added to and be a part of such initial lien.

The amendment has not been retroactively applied. Alpha-Bella VI, Inc. by United Jersey Bank v. Clinton Twp., 14 N.J. Tax 597 (1995).

N.J.S.A. 54:5-9 deals with priority of liens and provides:

Every municipal lien shall be a first lien on such land and paramount to all prior or subsequent alienation and descents of such land or encumbrances thereon, except subsequent municipal liens.

The provisions of federal law applicable to this dispute are found in the Federal Deposit Insurance Act as amended by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). The use of the term "Corporation" in the Act may refer to either the RTC or FDIC. 12 U.S.C.A. 1825(b) provides:

When acting as a receiver, the following provisions shall apply with respect to the Corporation:

(1) The Corporation including its franchise, its capital, reserves, and surplus, and its income, shall be exempt from all taxation imposed by the State, county, municipality, or local taxing authority, except that any real property of the Corporation shall be subject to State, territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed, except that notwithstanding the failure of any person to challenge an assessment under the State law of such property's value, such value, and the tax thereon, shall be determined as of the period for which such tax is imposed. (2) No property of the Corporation shall be subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the Corporation, nor shall any involuntary lien attach to the property of the Corporation.

The phrase "property of the Corporation" may refer to fee ownership of real estate by the FDIC or the holding of a lien interest. Simon v. Cebrick, 53 F.3d 17 (3d Cir.1995); Matagorda County v. Russell Law, 19 F.3d 215, 221 (5th Cir.1994). It is undisputed that the RTC's interest in the property herein was a security interest in the form of first and second mortgages. At no time did the RTC possess an ownership interest in the underlying fee. The issue in dispute is whether a lien under New Jersey Tax Law attached to the real property during the period that the RTC held the mortgages in receivership.

A facial reading of § 1825(b) would suggest that the decision is self-evident. Under New Jersey tax law a lien for unpaid real estate taxes attaches to the real estate itself. In this case the RTC never acquired an ownership interest in the real estate and therefore the title to the fee never became "property of the Corporation." The only "property of the Corporation" that the RTC acquired was a lien interest by reason of the two mortgages held by Security Savings & Loan Association. As a result, it would appear that § 1825(b)(2) does not act as a bar to attachment of a tax lien on the underlying real property during the period that the mortgages were held in receivership by the RTC.

This conclusion is consistent with well established FDIC policy. FDIC Legal Memorandum 91-48 (May 31, 1991) in addressing tax liens provides in pertinent part:

Although in most states, a real estate mortgage interest represents an interest in the real property, it is not tantamount to ownership of the property itself. Because the involuntary lien for delinquent real property taxes attaches to the property itself, nonconsensual liens purporting to attach to property owned in fee by a corporation are considered void, but liens may attach to property in which a corporation holds only a mortgage interest as security for a loan. See New Brunswick v. United States, 276 U.S. 547, 48 S.Ct. 371, 72 L.Ed. 693 (1928).

The FDIC's Statement of Policy Regarding the Payment of State and Local Taxes at 61 Fed.Reg. 65053 also provides:

D. Tax Liens

2. Attachment: Section 15(b)(2) of the FDIA provides that no involuntary lien shall attach to the property of the Corporation. One example of an involuntary lien is a lien that automatically attaches for delinquent taxes. Because the assets of a financial institution for which the FDIC has been appointed receiver do not become the "property of the Corporation" until the receivership appointment, any involuntary liens that attached prior to the appointment of the receiver are valid. Although in most states a real estate mortgage interest represents an interest in the real property, it is not tantamount to ownership of the property itself. Because an involuntary lien for delinquent real property taxes attaches to the property itself, nonconsensual liens purporting to attach to the property owned in fee by the FDIC are considered void, but liens may attach to property in which the FDIC holds only a mortgage interest as security for a loan.

The FDIC has followed this policy in practice since its adoption. See Simon v. Cebrick, supra, where the plaintiff Simon purchased tax lien certificates for the years 1990, 1991, 1992 and 1993 on property which was subject to two prior mortgages held by the First National Bank of Toms River. In 1991, the...