BV001 REO Blocker, LLC v. 53 West Somerset Properties, LLC, ___ N.J. Super. ___ (App. Div. 2021). Judge Ostrer’s opinion in this case, issued today, may become the new “go-to” source in cases seeking to invoke Rule 4:50-1(f). That Rule permits relief from judgments for “any other reason justifying relief from the operation of the judgment” besides those listed in the preceding sub-sections of Rule 4:50-1.
Citing and quoting ‘multiple Supreme Court cases, Judge Ostrer observed that “[s]ubsection (f) affords relief in ‘exceptional circumstances’ and its boundaries ‘are as expansive as the need to achieve equity and justice.'” Reversing the Chancery Division, the Appellate Division found extraordinary circumstances here.
The case involved foreclosure on a tax sale certificate that was sold due to unpaid property taxes. Defendant, the property owner, had entered into a contract to sell its assets and the subject real property. The buyers were to pay the purchase price over five years, and to pay the property taxes. Meanwhile, they would operate as their own a bar/restaurant that was located on the property. Once the buyers paid the full purchase price, ownership of the property would be transferred to them.
The buyers took occupancy but did not pay the taxes. Tax bills and delinquency notices were sent to the property, not to defendant, so defendant was not aware of the situation. Moreover, after the tax sale certificate was sold (unbeknownst to defendant), one of the buyers appointed himself as the registered agent for defendant. Thus, when the foreclosure complaint was filed, defendant was not served with it. Instead, the “imposter” (Judge Ostrer’s term) was, and he did not inform defendant of that or of subsequent developments in the case.
Only once defendant’s principal was preparing to sue the buyers, who had also failed to pay the contract price, did she learn of the existence of the case. Two days later, the court entered judgment.
Defendant “raced to rectify the situation,” filing a motion for relief from the judgment less than a week after learning of it. The Chancery Division denied that motion, but the Appellate Division reversed.
Judge Ostrer noted that default judgments should be reopened “with great liberality … to the end that a just result is reached.” Equitable principles, he said, should guide a decision on a motion to vacate a default judgment, and “all doubts” should be resolved in favor of the party seeking relief.
The abuse of discretion standard applied to the Appellate Division’s review here. Under the circumstances, Judge Ostrer ruled, “[t]he trial court discounted the equitable principles that favor granting the motion, mistakenly concluding that if defendant lacked a defense to the tax sale or the right to foreclose, defendant was not entitled to relief from the judgment and to a chance to redeem.” Contributing to that conclusion were the facts that defendant had no timely knowledge of the suit, defendant’s predicament was “mainly another’s doing” (that is, the buyers, who concealed their default and fraudulently changed the registered agent), and that defendant acted quickly to move for relief once having learned of the situation.
Judge Ostrer concluded with a useful analysis of the Tax Sale Law, whose key policy goal is “to encourage investors to acquire tax-sale certificates and fill municipal coffers with taxes that property owners have not paid.” But “another important purpose is to give the property owner the opportunity to redeem the certificate and reclaim his land.,” and the statute “expressly contemplates that a court may grant relief from an otherwise final judgment of foreclosure,” in accordance with law.
Judge Ostrer thus rejected plaintiff’s claim of prejudice from vacation of its judgment. Every foreclosure case in which a judgment is vacated entails the creditor’s loss of the property, which was plaintiff’s claimed prejudice. That does not justify refusing to vacate a default judgment in proper circumstances. Moreover, upon redemption by defendant, plaintiff would receive repayment of the taxes that it paid, with interest. That sort of payment is why purchasers of tax sale certificates acquire them.