Simon v. Cronecker

• Decision Date: 29 January 2007
• Citation: 915 A.2d 489,189 N.J. 304
• Parties: Richard SIMON, Trustee, Plaintiff-Appellant, v. Richard William CRONECKER, his heirs, devisees and personal representatives, and their or any of their successors in right, title and interest; Mrs. Richard William Cronecker; Emmett W. Ross, his heirs, devisees and personal representatives, and their or any of their successors in right, title and interest; Heloise B. Levit and Susan Fisch, Individually and As Executrices of the Estate of Claire Bertman, Deceased; Lupe H. Snyder, Individually and As Executrix of the Estate of Franklyn R. Snyder, Deceased; Pauline M. Cassel a/k/a Pauline Moock Cassel; Paul C. Moock, Jr., Individually and As Executor of the Estate of Margaret S. Moock, Deceased; Ronald Smith and Lois Smith, his wife; Samuel W. Newman, Esquire, Executor of the Estate of Blanche B. Moock, Deceased; C. Howard Moock, his heirs, devisees and personal representatives and their or any of their successors in right, title and interest; Clark S. Reese, Individually and As Executor of the Estate of Elizabeth R. Moock, Deceased; Annie Langenfeld; Josephine M. Ross; FUNB-Custodian for Fundco, Inc.; State of New Jersey; Unknown Owners/Unknown Claimants, their heirs, devisees and personal representatives, and their or any of their successors in right, title and interest, Defendants, and Cherrystone Bay, LLC, Intervenor-Respondent. Nicholas Grivas, Plaintiff-Appellant, v. Loretta Smyth and Richard Smyth, her husband, Defendants-Respondents, and Florence Barilotti and George Barilotti, her husband; Helen Ciandra and Furio Ciandra, her husband, their heirs, devisees and personal representatives, and their or any of their successors in right, title and interest; Josephine Marengo, widow; John Barletto and Rose Barletto, his wife; Paul Barletto and Julia Barletto, his wife; State of New Jersey; Bureaus Investment Group # 4 LLC and Harry Tini, Defendants, and Cherrystone Bay, LLC, Intervenor-Respondent.
• Court: New Jersey Supreme Court

915 A.2d 489

189 N.J. 304

Richard SIMON, Trustee, Plaintiff-Appellant, v.Richard William CRONECKER, his heirs, devisees and personal representatives, and their or any of their successors in right, title and interest; Mrs. Richard William Cronecker; Emmett W. Ross, his heirs, devisees and personal representatives, and their or any of their successors in right, title and interest; Heloise B. Levit and Susan Fisch, Individually and As Executrices of the Estate of Claire Bertman, Deceased; Lupe H. Snyder, Individually and As Executrix of the Estate of Franklyn R. Snyder, Deceased; Pauline M. Cassel a/k/a Pauline Moock Cassel; Paul C. Moock, Jr., Individually and As Executor of the Estate of Margaret S. Moock, Deceased; Ronald Smith and Lois Smith, his wife; Samuel W. Newman, Esquire, Executor of the Estate of Blanche B. Moock, Deceased; C. Howard Moock, his heirs, devisees and personal representatives and their or any of their successors in right, title and interest; Clark S. Reese, Individually and As Executor of the Estate of Elizabeth R. Moock, Deceased; Annie Langenfeld; Josephine M. Ross; FUNB-Custodian for Fundco, Inc.; State of New Jersey; Unknown Owners/UnknownClaimants, their heirs, devisees and personal representatives, and their or any of their successors in right, title and interest, Defendants, andCherrystone Bay, LLC, Intervenor-Respondent.

Nicholas Grivas, Plaintiff-Appellant, v.Loretta Smyth and Richard Smyth, her husband, Defendants-Respondents, andFlorence Barilotti and George Barilotti, her husband; Helen Ciandra and Furio Ciandra, her husband, their heirs, devisees and personal representatives, and their or any of their successors in right, title and interest; Josephine

Marengo, widow; John Barletto and Rose Barletto, his wife; Paul Barletto and Julia Barletto, his wife; State of New Jersey; Bureaus Investment Group # 4 LLC and Harry Tini, Defendants, and Cherrystone Bay, LLC, Intervenor-Respondent.

Supreme Court of New Jersey.

Argued September 12, 2006.

Decided January 29, 2007.

Keith A. Bonchi, Atlantic City, argued the cause for appellants (Goldenberg, Mackler, Sayegh, Mintz, Pfeffer, Bonchi & Gill, attorneys).

Anthony L. Velasquez, argued the cause for intervenor-respondent Cherrystone Bay, LLC in (A-105-05) Simon v. Cronecker.

Steven W. Griegel, argued the cause for respondents Loretta Smyth and Richard Smyth (Roselli Griegel, attorneys).

Maeve E. Cannon, Princeton, argued the cause for intervenor-respondent Cherrystone Bay, LLC in (A-106-05) Grivas v. Smyth (Hill Wallack, attorneys; Mark K. Smith, on the brief).

Justice ALBINdelivered the opinion of the Court.

In the two consolidated appeals before us, plaintiffs are holders of tax sale certificates covering the unpaid municipal taxes and charges on defendants' properties.Plaintiffs have instituted actions to foreclose on the tax certificates, and defendants stand to lose their properties unless they can redeem those certificates within the time prescribed by law.A third-party investor contracted to purchase defendants' properties and arranged for the redemption of the tax certificates, without intervening first in the foreclosure action.

Plaintiffs claim that the eleventh-hour intermeddling by the third-party investor, frustrating their efforts to foreclose on defendants' properties, violates the Tax Sale Law and this Court's decisions in Bron v. Weintraub,42 N.J. 87, 199 A.2d 625(1964)andWattles v. Plotts,120 N.J. 444, 577 A.2d 131(1990).They reason that thwarting the foreclosure action will diminish the market for tax certificates and thus increase the number of untaxed properties on the rolls of municipalities.Defendants and the third-party investor respond that property owners have both a statutory and constitutional right to sell their property, as defendants did here for substantial consideration.They contend that their contractual arrangements for redeeming the tax certificates will avert an unwarranted forfeiture of all of defendants' equity in their properties.

The trial court permitted the redemption of the tax certificates, finding that the third-party investor paid significant consideration for defendants' properties.We granted direct certification because of the importance of the issues raised in both cases.188 N.J. 259, 905 A.2d 869(2006).

These cases illustrate that competition in the marketplace can yield considerable social good.Here, in pursuing their self-interests to maximize profits, the tax sale certificate holders and third-party investor also produce important societal benefits — the certificate holder puts property back on the tax rolls and the third-party investor helps a property owner salvage a piece of his equity.We do not read the Tax Sale Law, N.J.S.A. 54:5-1 to -137, to discourage commercial competition that is likely to benefit a financially-strapped property owner, and we will not interfere with salutary market forces for the purpose of impoverishing him.

In balancing the conflicting interests in these cases, we now hold that the Tax Sale Law does not prohibit a third-party investor from redeeming a tax sale certificate after the filing of a foreclosure action, provided that the investor timely intervenes in the action and pays the property owner more than nominal consideration for the property.However, because the third-party investor here did not intervene in the foreclosure actions before arranging for redemption of the tax certificates, the investor will not be permitted to profit from the transactions.To protect defendants' interests, we impose constructive trusts, allowing plaintiffs to succeed in the third-party investor's place.For those reasons, we reverse the judgment of the trial court.

I.

A.Simon v. Cronecker

At a tax sale auction in October 1999, Sea Isle City put up for bid a tax sale certificate covering the unpaid sewer charges and real estate taxes on four lots owned by Mary E. Ross in that municipality.¹The successful bidder, plaintiffRichard Simon(Simon), purchased the tax certificate valued at $4841.40, agreeing to satisfy the tax and sewer arrearages on the Ross property.At the auction, the interest rate on the certificate was fixed at twelve percent per annum.

Over the next four years, Simon continued to pay the property taxes and sewer costs.In October 2003, Simon filed an action to foreclose on the tax certificate and thereafter amended the complaint multiple times to identify those with a potential interest in the Ross property.²Among those named were the heirs of Mary and Emmett W. Ross.Their grandchild, defendantEmmett W. Ross, Jr.(Ross), acquired his interest through his grandmother's will.By court order, August 22, 2005 was set as the last possible day for a person with a valid property interest to redeem the tax sale certificate, then valued at approximately $56,000.Simon stood poised to foreclose on the property.

Cherrystone Bay, LLC(Cherrystone), the intervenor in this case, is in the business of investing in properties subject to foreclosure.Through a search of public records, Cherrystone learned of Simon's foreclosure complaint and obtained the information necessary to contact Ross.Cherrystone then contracted with Ross to purchase Ross's property interest for $250,000.Ross claimed that he had been unable to find a buyer for the property until Cherrystone made its overture.On August 22, 2005, the last day to redeem the tax sale certificate, Cherrystone and Ross closed on the property.That same day, Ross and a title company representative delivered a cashier's check to the tax collector's office in the amount necessary for the redemption of the tax sale certificate.Up to that point, Cherrystone had not sought to intervene in the foreclosure action and apparently had not revealed its legal rights to the Ross property.Although the tax collector accepted the redemption check, Simon refused to surrender the tax sale certificate, claiming that the redemption was illegal.

In September 2005, Simon filed a motion to bar the redemption of the tax sale certificate, and in response Cherrystone for the first time moved to intervene in the foreclosure action.Plaintiff Simon and intervenor Cherrystone then became locked in a battle for the rights to the property.

An appraisal valued the Ross property at approximately $1,200,000.After deducting from the property's purchase price of $250,000, the $56,000 value of the tax sale certificate and the amounts placed in escrow to cover a judgment and overdue taxes, Ross was left with a cash disbursement of $63,422.77.Cherrystone asserted that Ross would receive more cash-in-hand from the escrowed funds if the amount of the outstanding judgment were reduced.In any event, Cherrystone maintained that Ross was gaining a "true benefit" with the use of the escrowed funds for the satisfaction of the judgment.

B.Grivas v. Smyth

The City of Wildwood conducted a tax sale auction in 1996, putting up for bid a tax certificate covering back real estate taxes on property owned by defendant Smyth family.³First Union National Bank purchased the tax certificate, valued at $2,893.59.The auction set the interest yield rate at fifteen percent per annum.Six years later, First Union assigned the certificate for one dollar to plaintiffNicholas Grivas(Grivas), who thereafter paid taxes on the property.

In January 2004, Grivas filed a complaint to foreclose on the tax certificate.The last day for redemption of the certificate, then valued at almost $90,000, was scheduled for March 14, 2005.Eleven days before the redemption date, Cherrystone contacted Richard and Loretta Smyth, expressing interest in purchasing the property.With the looming prospect of losing all the equity in their property in the foreclosure action, the members of the extended Smyth family decided to sell their interests to Cherrystone.⁴

Thereafter, Cherrystone contracted with the Smyths to purchase the property for...