FARGIL REALTY, LLC VS. BROADWAY AUTO PARTS (F-018831-17, PASSAIC COUNTY AND STATEWIDE) ( 2019 )


Menu:
  •                                 NOT FOR PUBLICATION WITHOUT THE
    APPROVAL OF THE APPELLATE DIVISION
    This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
    internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
    SUPERIOR COURT OF NEW JERSEY
    APPELLATE DIVISION
    DOCKET NO. A-4809-17T2
    FARGIL REALTY, LLC,
    Plaintiff-Respondent,
    v.
    BROADWAY AUTO PARTS,
    FIRST NATIONAL BANK, n/k/a
    WELLS FARGO BANK, NA,
    PNC BANK, and STATE OF
    NEW JERSEY,
    Defendants.
    ______________________________
    450 BROADWAY, LLC,
    Appellant.
    ______________________________
    Argued March 18, 2019 – Decided May 9, 2019
    Before Judges Fasciale and Gooden Brown.
    On appeal from Superior Court of New Jersey,
    Chancery Division, Passaic County, Docket No. F-
    018831-17.
    Clark L. Cornwell, III, argued the cause for appellant.
    Susan B. Fagan-Rodriguez argued the cause for
    respondent.
    PER CURIAM
    450 Broadway, LLC (Broadway), the proposed intervenor in a tax sale
    foreclosure action instituted by plaintiff Fargil Realty, LLC (Fargil), against
    defendant property owner Broadway Auto Parts (Auto), appeals from a May 21,
    2018 Chancery Division order, denying its motion to intervene in order to
    redeem the tax sale certificate and vacate the final judgment of foreclosure
    entered in favor of Fargil. Having considered the arguments and applicable law,
    we affirm.
    We glean the following facts from the record.        Auto owned 450-458
    Broadway in Paterson (the property), but failed to pay taxes. As a result, on
    June 25, 2015, the Paterson Tax Collector sold tax sale certificate number 2016-
    1748, secured by the property, to SLS I, LLC (SLS), for $17,822.55, which was
    recorded in the County Clerk's Office on November 2, 2015. 1 On March 16,
    1
    The Tax Sale Law (the Act), N.J.S.A. 54:5-1 to -137, provides a mechanism
    for individuals or entities to purchase tax liens from municipalities and initiate
    foreclosure actions against property owners who are delinquent in paying their
    property taxes. The foreclosure process begins when a property owner fails to
    pay the property taxes, as the unpaid balance becomes a municipal lien on the
    property. N.J.S.A. 54:5-6. "When unpaid taxes or any municipal lien . . .
    remains in arrears on the [eleventh] day of the eleventh month in the fiscal year
    A-4809-17T2
    2
    2016, SLS assigned the tax sale certificate to Fargil, which assignment was
    recorded on April 21, 2016.
    After the statutorily-required two-year redemption period expired, on
    August 9, 2017, Fargil filed a foreclosure complaint, naming Auto as a
    defendant, as well as other entities with an interest in the property (collectively
    defendants).2 A copy of the summons and complaint was served upon Auto's
    registered agent on August 10, 2017, along with all other defendants.3 On
    August 15, 2017, Fargil filed a lis pendens with the County Clerk's Office, which
    was recorded on August 23, 2017, providing notice of the foreclosure action.
    Based on defendants' failure to file an answer, on Fargil's motion, default was
    entered and an order setting amount, time, and place of redemption (OST) was
    when the taxes or lien became in arrears, the collector . . . shall enforce the lien
    by selling the property . . . ." N.J.S.A. 54:5-19. Upon completion of the sale, a
    certificate of tax sale is issued to the purchaser. N.J.S.A. 54:5-46.
    2
    A tax foreclosure sale is subject to redemption. N.J.S.A. 54:5-32. If the
    certificate is not redeemed within two years from the date of the tax sale, the
    certificate holder can file an in personam foreclosure action to bar th e right of
    redemption. N.J.S.A. 54:5-86(a). Prior thereto, the certificate holder must,
    through a "title search of the public record," identify "any lienholder or other
    persons and entities with an interest in the property that is subject to
    foreclosure," who then must be named as defendants in the action and served
    with the foreclosure complaint. R. 4:64-1(a).
    3
    One defendant was served on August 15, 2017. The remaining defendants
    were served on August 10, 2017, along with Auto.
    A-4809-17T2
    3
    entered on November 9, 2017.          The OST fixed the redemption amount at
    $98,888.78, the Paterson Tax Collector's Office as the place for redemption, and
    December 26, 2017, as the last day to redeem. The OST also specified that
    "[a]nything to the contrary notwithstanding, redemption shall be permitted up
    until the entry of final judgment."
    Once the deadline passed, on January 3, 2018, Fargil moved for entry of
    final judgment. In support, Fargil submitted an affidavit of non-redemption by
    Sonia Schulman, Paterson's Tax Collector, who averred that "neither the
    defendants nor any . . . persons acting on their behalf appeared before [her]" by
    the December 26, 2017 deadline to pay the redemption amount as required by
    the OST. On February 7, 2018, final judgment was entered on Fargil's behalf.
    However, while the foreclosure action had been pending, Auto sold the
    property to Broadway for $455,000.           The contract of sale was entered on
    November 27, 2017, and the deed was executed on December 21, 2017. The
    closing took place on January 8, 2018, as a result of which the title company
    sent the Paterson Tax Collector a certified check in the amount of $119,749.68
    to redeem the tax sale certificate, and requested a conforming certificate of
    redemption. The Paterson Tax Collector received the request on January 12,
    2018, and forwarded the certificate to Fargil, requesting its endorsement.
    A-4809-17T2
    4
    However, Fargil refused, and, instead, attempted to obtain a copy of the
    sale contract between Broadway and Auto. When those efforts failed, on March
    28, 2018, Fargil moved to bar redemption, impose a constructive trust, and
    permit Fargil to purchase the property for the sale price of $455,000. In support,
    Fargil submitted certifications from David Farber, a member of Fargil, Fargil's
    foreclosure counsel, and Fargil's litigation counsel.
    Farber certified that he had been interested in acquiring the property for
    some time and had previously purchased tax sale certificates that "were
    redeemed by the owner prior to [f]inal [j]udgment." He asserted that before
    Fargil acquired the tax sale certificate from SLS, the property had been listed
    "for sale at the asking price of [$750,000,]" and his "offer" of $500,000 had been
    "accepted." However, when "[he] requested an adjustment of the purchase
    price" due to concerns about "an environmental issue" on the property, "the
    contract was cancelled."       Thereafter, he "continued to pursue the tax
    foreclosure."
    According to Farber, "[a]fter the foreclosure complaint was filed and
    Fargil's foreclosure counsel was applying for final judgment, [he] received a
    telephone call from another investor" inquiring about "the 'investment -
    worthiness' of the . . . property." He later learned that the "investor" was "the
    A-4809-17T2
    5
    principal of . . . Broadway" who "had already purchased the property from
    Auto." As a result, he "asked foreclosure counsel to investigate" the sale and
    attempted redemption because "[he] was suspicious about the transaction as well
    as the relationship of the purchase price to the fair market value of the property."
    Deborah Feldstein, Fargil's foreclosure counsel, certified that "[w]hile
    [she] was investigating the attempted redemption, the Foreclosure Unit entered
    . . . [f]inal [j]udgment on February 7, 2018." During her investigation, she
    "review[ed] the closing documents" and "requested from the title company a
    copy of the contract of sale between Auto and [Broadway]." However, "[her]
    request . . . was refused."     She also "reviewed the [e]Courts docket" and
    confirmed that "a motion to intervene had [not] been filed by [Broadway]."
    Susan Fagan-Rodriguez, Fargil's litigation counsel, confirmed that "[b]oth
    the contract of sale," which she eventually obtained "[o]n or about March 5,
    2018," and "the closing took place after the filing of the tax foreclosure
    complaint[.]" She also confirmed that "no motion to intervene was filed prior
    to the contract, the closing[,] or the attempted redemption."
    A-4809-17T2
    6
    On April 2, 2018, Broadway moved to intervene and cross-moved to
    vacate the final judgment under Rule 4:50-1(a), (e), and (f).4 In support, Howard
    Berman, Broadway's counsel, certified that "[t]he transaction was an arm's
    length transaction that involved [r]eal [e]state [b]rokers and [c]ounsel." To
    address "adequacy of [c]onsideration[,]" Berman pointed out that Broadway
    "matched" Fargil's $500,000 offer, "but then received a [$45,000] credit based
    on environmental issues that were discovered during [Broadway's] due diligence
    period." He also noted that despite receiving notice from the City of Paterson
    on January 12, 2018, "that redemption had been tendered[,] [Fargil] allowed the
    [c]ourt to enter final judgment on February 7, 2018."
    On April 30, 2018, the motion judge granted Fargil's motion as an
    unopposed motion. The memorializing order barred Broadway's "attempt to
    redeem," as violating the Act. Further, the order imposed "a [c]onstructive trust
    on the real estate transaction between [Auto] and [Broadway], thereby allowing
    Fargil . . . to purchase the property . . . under the same terms and conditions of
    4
    Under Rule 4:50-1, "the court may relieve a party or the party's legal
    representative from a final judgment" for "mistake, inadvertence, surprise, or
    excusable neglect[,]" Rule 4:50-1(a); if "the judgment . . . has been satisfied,
    released[,] or discharged . . . or it is no longer equitable that the judgment . . .
    should have prospective application[,]" Rule 4:50-1(e); or "any other reason
    justifying relief[,]" Rule 4:50-1(f).
    A-4809-17T2
    7
    the [November 27, 2017] real estate contract." Upon later discovering that
    Broadway's motion was not considered prior to the entry of the April 30, 2018
    order,5 the judge found "good reason to consider" Broadway's motion as a
    motion for reconsideration under Rule 4:49-2, but, on May 21, 2018, denied the
    motion in an oral decision.
    In his decision, initially, the judge recited the rules governing
    intervention. See R. 4:33-1 (allowing intervention as of right "[u]pon timely
    application . . . if the applicant claims an interest relating to the property" and
    "the disposition of the action may as a practical matter impair or impede the
    ability to protect that interest"); R. 4:33-2 (allowing permissive intervention by
    anyone "[u]pon timely application . . . if the claim or defense and the main action
    have a question of law or fact in common[,]" but "[i]n exercising its discretion [,]
    the court shall consider whether the intervention will unduly delay or prejudice
    the adjudication of the rights of the original parties").
    Next, relying on N.J.S.A. 54:5-89.1, Simon v. Cronecker, 
    189 N.J. 304
    (2007), and Simon v. Rando, 
    189 N.J. 339
     (2007), the judge stated that "any
    5
    Because Broadway did not specify its opposition to Fargil's motion, eCourts
    scheduled the motions for different return dates.
    A-4809-17T2
    8
    party claiming an interest in the property must intervene in the [tax sale
    foreclosure] action prior to final judgment being entered." The judge explained:
    The Court has held in [Cronecker] as well as
    [Rando] that a third-party seeking to redeem a tax sale[]
    certificate that is currently subject to a foreclosure
    action must intervene in the action prior to the entrance
    of final judgment.
    That has not . . . been done in this case. And the
    intervener's motion to intervene at this point is not
    timely. And no reason exists to vacate the final
    judgment in this matter. So the [c]ourt has considered
    . . . the arguments of [Broadway] and has decided that
    the motion to vacate the final judgment will not . . . be
    granted.
    The judge entered a memorializing order and this appeal followed.
    Broadway's "right to intervene, in an attempt to vacate a final judgment
    and exercise a right of redemption, was not absolute, but discretionary[,]" and
    thus subject to the trial court determining whether the application was timely
    and "whether the intervention [would] unduly delay or prejudice the
    adjudication of the rights of the original parties." Town of Phillipsburg v. Block
    1508, Lot 12, 
    380 N.J. Super. 159
    , 172 (App. Div. 2005) (quoting R. 4:33-2).
    See Twp. of Hanover v. Town of Morristown, 
    118 N.J. Super. 136
    , 143 (Ch.
    Div.), aff'd, 
    121 N.J. Super. 536
     (App. Div. 1972) ("An essential prerequisite to
    A-4809-17T2
    9
    intervention is timeliness, which should be equated with diligence and
    promptness.").
    Likewise, Broadway's "motion for vacation of the judgment [pursuant to
    Rule 4:50-1] should be granted sparingly, and is addressed to the sound
    discretion of the trial court, whose determination will be left undisturbed unless
    it results from a clear abuse of discretion." Town of Phillipsburg, 
    380 N.J. Super. at 173
     (alteration in original) (quoting Pressler, Current N.J. Court Rules,
    cmt. 1.1 on R. 4:50-1 (2005)). An abuse of discretion "arises when a decision
    is 'made without a rational explanation, inexplicably departed from established
    policies, or rested on an impermissible basis.'" Flagg v. Essex Cty. Prosecutor,
    
    171 N.J. 561
    , 571 (2002) (quoting Achacoso-Sanchez v. Immigration &
    Naturalization Serv., 
    779 F.2d 1260
    , 1265 (7th Cir. 1985)).
    Here, we discern no abuse of discretion, clear or otherwise, and are
    satisfied that "there are good reasons . . . to defer to the particular decision at
    issue." 
    Ibid.
     The judge determined that Broadway's application to intervene
    was untimely, which it was, and that Broadway failed to demonstrate
    meritorious grounds justifying relief under Rule 4:50-1, which it failed to do.
    Broadway's reliance on the fact that Fargil was aware of the attempted
    A-4809-17T2
    10
    redemption and still allowed final judgment to be entered was insufficient to
    justify relief under Rule 4:50-1.
    Broadway argues the judge erred in its "tortured application" of Cronecker
    to the facts of this case because Broadway entered into "an arm's length , bona
    fide real estate transaction" that was not designed to improperly impede or
    frustrate Fargil's tax foreclosure action, and "there [was] no suggestion that the
    purchase price paid by . . . Broadway was nominal." In Cronecker, our Supreme
    Court addressed the Act and instituted protections for distressed property
    owners. 189 N.J. at 319. The Court noted that the Act "places no restrictions
    on how a third-party investor arranges for the purchase of property and the
    redemption of a tax certificate" prior to the filing of a foreclosure complaint. Id.
    at 320. However, once a foreclosure complaint is filed, a third-party investor
    purchasing the property may not redeem the tax certificate without first
    complying with the Act, "which delineates the competing rights of tax certificate
    holders and property owners." Id. at 318.
    "In the post-foreclosure complaint period," N.J.S.A. 54:5-89.1 and 54:5-
    98 "mandate intervention by a third-party investor before seeking redemption of
    a tax certificate." Id. at 320. "After the filing of the foreclosure complaint, . . .
    both the property's sale and the redemption procedure are subject to court
    A-4809-17T2
    11
    supervision, primarily to protect property owners from exploitation by third -
    party investors." Ibid. Thus, "[t]o facilitate judicial review of the adequacy of
    the consideration offered to the owner, the Act requires that third-party investors
    who seek either directly or indirectly to acquire the property and redeem the tax
    sale certificate intervene in the foreclosure action." Ibid.; accord Rando, 
    189 N.J. at 342-43
    .
    In Cronecker, the Court voided the third-party investor's contracts and
    "impose[d] constructive trusts in favor of defendant property owners, granting
    [the tax certificate holders] the opportunity to assume [the third-party investor's]
    contractual rights" because the third-party investor "did not seek to become a
    party to the actions before arranging for the redemption of the tax certificates"
    in violation of the Act. Id. at 338. See also Rando, 
    189 N.J. at 342
     ("one who
    redeems an interest acquired post-complaint, without first applying for
    admission to the action, has not made a valid redemption in the cause" (quoting
    Simon v. Rando, 
    374 N.J. Super. 147
    , 158 (App. Div. 2005))).
    Thus, Broadway's failure to timely intervene in the foreclosure action is
    fatal to its position. Broadway moved to intervene in the foreclosure action
    nearly two months after entry of final judgment and nearly three months after it
    closed on the property and attempted to redeem. Like the third-party investor
    A-4809-17T2
    12
    in Cronecker, "before redeeming or causing to be redeemed the tax certificate,"
    Broadway "had the duty to apply for admission to the foreclosure action[]" and
    "did not have a right to tender funds to the tax collector without prior judicial
    authorization." 189 N.J. at 337. We also conclude that a constructive trust was
    properly imposed as a safeguard to Fargil's property rights. Id. at 338.
    Affirmed.
    A-4809-17T2
    13