EBURY RE LLC VS. GLENIS A. DE LA CRUZ (F-001829-16, PASSAIC COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE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-0734-18T2
EBURY RE LLC,
Plaintiff-Appellant,
v.
GLENIS A. DE LA CRUZ,
HECTOR A. DE LA CRUZ
a/k/a HECTOR DE LA CRUZ
VALERIO, and STATE OF NEW
JERSEY,
Defendants,
and
DEUTSCHE BANK NATIONAL
TRUST COMPANY, AS TRUSTEE
OF THE INDYMAC INDX
MORTGAGE TRUST 2006-AR25,
MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 2006-AR25,
UNDER THE POOLING AND SERVICES
AGREEMENT DATED JULY 1, 2006,
improperly pleaded as EASTERN
AMERICAN MORTGAGE CO., a NEW
JERSEY CORPORATION,
Defendant-Respondent.
____________________________________
Argued December 4, 2019 - Decided December 27, 2019
Before Judges Mayer and Enright.
On appeal from the Superior Court of New Jersey,
Chancery Division, Passaic County, Docket No.
F-001829-16.
Keith Alan Bonchi argued the cause for appellant
(Goldenberg, Mackler, Sayegh, Mintz, Pfeffer, Bonchi
& Gill, attorneys; Keith Alan Bonchi, of counsel and on
the briefs; Elliott J. Almanza, on the briefs).
Brian J. Slipakoff argued the cause for respondent
(Duane Morris, LLP, attorneys; Brett L. Messinger,
Brian J. Slipakoff, and Stuart I. Seiden, on the brief).
PER CURIAM
Plaintiff Ebury Re LLC appeals from an April 9, 2018 order vacating a
February 23, 2017 final judgment and allowing defendant Deutsche Bank
National Trust Company, as trustee of the Indymac Indx Mortgage Trust 2006 -
AR25, Mortgage Pass-Through Certificates, Series 2006-AR25, under the
Pooling and Servicing Agreement dated July 1, 2006 (Deutsche Bank), to file
an answer. We affirm.
We provide a detailed recitation of the legal proceedings giving rise to
this appeal.
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On May 4, 2006, Glenis A. De La Cruz and Hector A. De La Cruz
(Borrowers) executed a note for a loan in the amount of $304,000 with Eastern
American Mortgage Co. (Eastern American). The Borrowers also executed a
mortgage, in the event of a default on the note, granting Eastern American a
security interest in a property located in Paterson (Property). Deutsche Bank
had an interest in the Property pursuant to an allonge1 annexed to the note.
The mortgage, recorded in January 2007, listed only Eastern American as
having an interest in the Property. The mortgage did not mention Deutsche
Bank's interest in the Property.
Eastern American provided Deutsche Bank with an assignment of the
mortgage. However, the assignment was not recorded because Deutsche Bank
lost or misplaced the document. When Deutsche Bank realized the assignment
was missing, it attempted to obtain a new assignment from Eastern American.
On July 1, 2010, the Borrowers defaulted on the note and mortgage.2
Deutsche Bank filed a foreclosure complaint on May 2, 2013. In the foreclosure
1
An allonge is a paper attached to a negotiable instrument, such as a note,
providing space for additional indorsements. Black's Law Dictionary 95 (11th
ed. 2015).
2
In 2009, the Borrowers entered into a mortgage modification agreement with
Deutsche Bank but were unable to make the monthly payments as modified.
A-0734-18T2
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complaint, Deutsche Bank stated it owned the note and mortgage pursuant to an
assignment from Eastern Mortgage but had misplaced the assignment.
When it filed the 2013 foreclosure complaint, Deutsche Bank also filed a
lis pendens on the Property. The lis pendens identified Deutsche Bank as the
plaintiff in the 2013 foreclosure action and provided the docket number
associated with that foreclosure proceeding.
In May 2017, Deutsche Bank obtained a new assignment of mortgage from
Eastern American's former president. Deutsche Bank recorded the assignment
on June 7, 2017.
Unbeknownst to Deutsche Bank, on June 28, 2011, U.S. Bank purchased
Tax Sale Certificate No. 2012-000297 (Certificate) from the City of Paterson in
the amount of $183.20. The Certificate, recorded on October 21, 2011, was
issued because the Borrowers failed to pay taxes on the Property.
On December 15, 2015, prior to filing a tax sale foreclosure complaint,
U.S. Bank conducted a title search on the Property. The title search disclosed
the mortgage on the Property, the Certificate, and Deutsche Bank’s 2013 lis
pendens. U.S. Bank's discovery of the 2013 lis pendens revealed Deutsche Bank
as the named plaintiff in the pending 2013 foreclosure action against the
Property.
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On January 20, 2016, U.S. Bank filed a tax sale foreclosure complaint but
did not name Deutsche Bank as a defendant. The next day, U.S. Bank filed a lis
pendens on the Property.
U.S. Bank purportedly served Eastern American with the tax sale
foreclosure complaint on March 26, 2016. A courtesy copy of the tax sale
foreclosure complaint was sent to a prior law firm listed on Deutsche Bank's
2013 foreclosure complaint and lis pendens. However, the firm receiving the
courtesy copy of the tax sale foreclosure complaint did not represent Deutsche
Bank in 2016 and never represented Eastern American. 3
On June 23, 2016, U.S. Bank filed a notice to redeem the Certificate. The
redemption notice was sent to the law firm which represented Deutsche Bank
prior to 2015. Deutsche Bank was never personally served with the tax sale
foreclosure complaint or redemption notice.
On July 25, 2016, U.S. Bank assigned the Certificate to plaintiff. On that
same day, the trial court entered an order setting the time, place, and amount of
the redemption for the Certificate. Plaintiff served the order only on the
defendants named in the tax sale foreclosure complaint. Deutsche Bank never
3
In 2015, a different law firm filed a substitution of attorney for Deutsche Bank
in the 2013 foreclosure action.
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received the redemption order and the copy of the order sent to Eastern
American was returned to plaintiff as "unclaimed."
Because the tax sale foreclosure complaint was uncontested, on February
23, 2017, the trial court entered a final judgment by default for plaintiff.
Deutsche Bank subsequently learned of plaintiff's final judgment by
default and, on December 14, 2017, filed a motion to vacate the judgment.
Plaintiff opposed the motion, claiming Deutsche Bank had no recorded interest
in the Property during pendency of the tax sale foreclosure action.
The motion judge heard oral argument on Deutsche Bank’s motion to
vacate the final default judgment. Relying on Rule 4:50-1, the judge vacated
the default judgment in the tax sale foreclosure action and allowed Deutsche
Bank to file a contesting answer. The judge held "[g]iven the facts of this case,
to deny Deutsche Bank the opportunity to protect its interest would only serve
to unjustly enrich the plaintiff." The judge concluded:
it behooved [plaintiff] to further research the identity of
the actual lender, whose interest it was seeking to
foreclose; rather, [plaintiff] simply seeks to rely upon
the original recorded mortgage as justification for its
failure to ignore the public record and court's docket or
otherwise exercis[e] reasonable diligence and prudence
to [at] a minimum contact[] prior foreclosure counsel
listed on the recorded lis pendens. So[,] . . . [plaintiff]
should have contacted the foreclosure counsel listed on
the lis pendens, which [plaintiff] subsequently did do[,]
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because they would have been able to investigate the
relationship between Eastern Mortgage Co. and
Deutsche Bank, given the previously filed complaint,
amended complaint, and recorded lis pendens. Instead
of doing that, [plaintiff] seeks to wipe out the mortgage
of Deutche Bank in the within tax foreclosure action
and judgment and [plaintiff] now seeks to be unjustly
enriched from its prior acquisition of tax certificate, far
less than the value of the subject property[,] by
attempting to complete a sale to a third-party
purchase[r] while denying Deutsche Bank the
opportunity to redeem the certificate in question and
satisfy [plaintiff]'s interest, which was all it [c]ould
have otherwise been entitled to recoup under the tax
sale laws.
The judge determined:
The entire purpose of the tax foreclosure process is to
insure the timely and full payment of all outstanding
property taxes to municipalities. The mechanism for
such payment is the tax foreclosure process, which
allows towns to realize such tax payments while
permitting third parties the opportunity to realize a
significant return on their investment and[,] under the
statute, it's as high as [eighteen] percent.
In vacating plaintiff's final judgment, the judge explained:
[Rule 4:50-1] is intended to be utilized in exceptional
circumstances such as presently before the [c]ourt
where a default judgment, if otherwise allowed to
stand, would inflict an extremely inequitable and unfair
outcome upon the mov[ing] party, which in this case
would be the total and complete elimination of this
otherwise properly perfected mortgage lien secured by
the property. The [c]ourt finds that [it] is vested with
such equitable power to vacate such [a] judgment upon
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such exceptional circumstances, given the procedural
history of this matter and where [plaintiff] certainly
never intended or reasonably expected to be in line for
such an unjustified windfall to the detriment of
Deutsche Bank.
On appeal, plaintiff argues the judge lacked the equitable power to deviate
from N.J.S.A. 54:5-89.1. Plaintiff contends N.J.S.A. 54:5-89.1 mandates that a
party with an unrecorded interest at the time of the tax sale foreclosure action is
bound by the proceedings and automatically joined in the lawsuit and any
ultimate judgment entered. Plaintiff also asserts it had no duty to investigate
Deutsche Bank's interest in the Property because the assignment to Deutsche
Bank was not recorded as of the filing date of the tax sale foreclosure action.
We review a trial court's decision to vacate a final judgment pursuant to
Rule 4:50-1 for abuse of discretion. U.S. Bank Nat'l Ass'n v. Guillaume, 209
N.J. 449, 467 (2012); see also Court Inv. Co. v. Perillo, 48 N.J. 334, 341 (1966)
("That discretion is a broad one to be exercised according to equitable principles,
and the decision reached by the trial court will be accepted by an appellate
tribunal in the absence of an abuse of its discretion."). While intended to be
used sparingly, Rule 4:50-1(f) may be applied in exceptional situations "to
provide relief from judgments . . . in which, were it not applied, a grave injustice
would occur." Hous. Auth. of Morristown v. Little, 135 N.J. 274, 289 (1994).
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However, "[a] trial court's interpretation of the law and the legal consequences
that flow from established facts are not entitled to any special deference."
Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
Vacating the final default judgment in this matter is consistent with the
intent and purpose of the Tax Sale Law (TSL), N.J.S.A. 54:5-1 to -137. The
TSL is "designed to enhance the collection of taxes." Savage v. Weissman, 355
N.J. Super. 429, 435-36 (App. Div. 2002) (citations omitted) ("A tax sale
certificate is not an outright conveyance. It creates only a lien on the premises
and conveys the lien interest of the taxing authority. . . . [T]he interest of the
holder of the tax sale certificate is entirely subordinate to the statutory right of
redemption of the property owner.").
Our Supreme Court has held the TSL's "primary purpose . . . is not to
divest owners of their property, but to provide a method for collecting taxes."
Sonderman v. Remington Constr. Co., 127 N.J. 96, 109 (1992). As we noted in
Phillipsburg v. Block 1508, Lot 12, 380 N.J. Super. 159, 162 (App. Div. 2005),
"courts have looked with disfavor on those . . . who would take advantage of the
[TSL] to obtain a windfall at the expense of persons who either might be
unaware or unable to take advantage of their own rights and interests in the
property."
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The TSL is intended "to give the property owner the opportunity to redeem
the certificate and reclaim his land." Simon v. Cronecker, 189 N.J. 304, 319
(2007). Purchasers of tax sale certificates know "from the start that most tax
certificate investments end not in windfall profits from foreclosure but rather in
high yield interest returns upon redemption." Id. at 329.
Plaintiff seeks to invoke N.J.S.A. 54:5-89.1 to bar Deutsche Bank from
filing an answer and redeeming the Certificate because the assignment from
Eastern American was not recorded until 2017, after plaintiff filed its tax sale
foreclosure complaint. Plaintiff argues the statute, providing for finality of its
judgment against Deutsche Bank's unrecorded interest in the Property, prevails
over Rule 4:50-1, providing relief from judgments.
N.J.S.A. 54:5-89.1 provides, in part, as follows:
In any action to foreclose the right of redemption in any
property sold for unpaid taxes . . . , all persons claiming
an interest in . . . such property, by or through any . . .
lien . . . which, . . . could be recorded . . . , and which
shall not be so recorded . . . at the time of the filing of
the complaint in such action shall be bound by the
proceedings in the action . . . .
A notice of lis pendens shall "be filed and recorded for subsequent interest
takers to have constructive notice of the pendency of a lawsuit and to take
subordinate to the rights the plaintiff derives in the outcome of the litigation."
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Manzo v. Shawmut Bank, N.A., 291 N.J. Super. 194, 199 (App. Div. 1996)
(citations omitted). "The primary purpose of the notice of lis pendens is to
preserve the property which is the subject matter of the lawsuit . . . so that full
judicial relief can be granted, if the plaintiff prevails." Id. at 200. The filing of
a lis pendens "provides constructive notice to subsequent interest takers in the
property that a dispute exists concerning rights to the property." Ibid.Here, the 2013 lis pendens gave notice that Deutsche Bank had a dispute
related to the Property based on its 2013 foreclosure action. Plaintiff knew of
Deutsche Bank's filed and recorded 2013 lis pendens through a title search
conducted prior to the filing of the tax sale foreclosure action. The 2013 lis
pendens evidenced Deutsche Bank's foreclosure action to enforce its lien against
the Property and provided sufficient information to identify Deutche Bank's
interest in the Property. Having reviewed the record, we agree the judge did not
abuse his discretion by vacating plaintiff's final judgment and allowing Deutsche
Bank to file a contesting answer.
Under these unique circumstances, it would have been unfair, inequitable,
and resulted in a grave injustice if the final default judgment had not been
vacated, especially in light of the significant monetary difference between the
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cost to redeem the Certificate and the value of Deutsche Bank's interest in the
Property.
Affirmed.
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