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Associations Prohibited From Redeeming Tax Sale Certificates

By Stephanie Wiegand, Esq. March 28, 2017 Posted in Community Association Law

In a recent unpublished decision out of the Hudson County Chancery Division, a New Jersey Court has determined that condominium associations do not fit the definition indicated in N.J.S.A. 54:5-54 as an appropriate party that is able to redeem a tax sale certificate.

 In JNH Funding Corp. v. Ayed and Highland House Condo. Assoc., Docket No. HUD-F-008704-14, the Plaintiff, a party that purchased a tax sale certificate on a condominium unit, filed against the Defendant, a condominium association (the “Association”), a motion to vacate the Association’s redemption of the tax sale certificate.  In short, the Plaintiff purchased the tax sale certificate at a public sale in 2006 and began a foreclosure action on it thereafter.  The tax sale certificate was related to unpaid taxes for a unit within the Association.

 The Association brought its own foreclosure action against the owner of the delinquent unit in January 2014. Two months later, the Plaintiff filed its foreclosure action on the tax sale certificate, naming the Association as a defendant in same.  In late 2016, negotiations took place between counsel for the Plaintiff and the Association.  The Plaintiff desired to obtain title to the subject unit and offered to satisfy the Association’s lien on same.  During this time, Plaintiff’s counsel mistakenly believed that the Association had the right to redeem the tax sale certificate and thus continued with the negotiations.

 In September 2016, the Association redeemed the tax sale certificate.   However, the Plaintiff has refused the take the money for same and refused to turn over the certificate to the Association.  In February 2017, the Association bought back the subject unit at its own Sheriff’s sale.  In the interim, Plaintiff filed an Order to Show Cause to vacate redemption of the certificate by the Association.

N.J.S.A. 54:5-54 governs the redemption of tax sale certificates. It provides for a very narrow group of parties that may redeem a certificate, including: “the owner, his heirs, holder of any prior outstanding tax lien certificate, mortgagee, or occupant of land…”  As the Court in this case indicated, as a matter of public policy, foreclosures of tax liens are encouraged to assist municipalities in their collection of outstanding taxes.  The Court further noted that the Legislature and courts look with “disfavor on those described as ‘intermeddlers; ‘title raiders’; or ‘heir hunters’.”  (citing Cherokee Equities, L.L.C. v. Garaventa, 382 N.J. Super. 201, 206 (Ch. Div. 2005)

The group of parties indicated in N.J.S.A. 54:5-54 who may redeem tax sale certificates has been narrowly construed by the courts. The Court in this case noted that prior courts have determined that judgment creditors, like the Association, are not an “owner” of the subject unit and thus have no right to redemption.  Further, the New Jersey Appellate Division has previously held that judgment creditors are not the same as mortgagees. See Caput Mortuum, LLC v. S&S Crown Services, Ltd., 366 N.J. Super. 323 (App. Div. 2004).  The Court in this case would not comment on whether the Association could now redeem the tax sale certificate after it purchased the subject unit back at its own Sheriff’s sale.

The Court further indicated that pursuant to N.J.S.A. 46:8B-21(b), an association’s lien has priority over other encumbrances. However, “municipal liens or liens for federal taxes” are specifically prohibited from the “super-priority” of an association’s lien.

Therefore, the Court in this case held that a condominium association is not a mortgagee. The fact that the association’s lien is subordinated to the tax sale certification under N.J.S.A. 46:8B-21(b) “further indicates that the [association] here should not be considered a “mortgagee” with the ability to redeem the tax sale certificate.”

This may have significant consequences for condominium associations that are foreclosing on a delinquent unit where there is also a tax sale certificate against the same unit that is also being foreclosed upon. If the association is seeking to redeeming the tax sale certificate and hope to later purchase the unit back at its own Sheriff’s sale, it will be unable to do so.  There may be an argument to be made if the association already owns the unit (after buying back at its own Sheriff’s sale) and then redeems the tax sale certificate as an “owner,” but this remains to be determined by a Court.

The information in this Client Alert is provided solely for information purposes. It should not be construed as legal advice on any specific matter and is not intended to create an attorney-client relationship. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based upon particular circumstances.  Each legal matter is unique, and prior results do not guarantee a similar outcome.

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