Case Title: Wattles v. Plotts

Citation: 120 N.J. 444, 577 A.2d 131

Docket Number: 

State: new-jersey

Court: New Jersey Supreme Court

Date: 1990-07-25T00:00:00Z

Document:
120 N.J. 444 (1990) 577 A.2d 131 GORDON B. WATTLES, SUBSTITUTED PLAINTIFF FOR ELIZABETH B. SHIELDS, PLAINTIFF-APPELLANT, v. EDWARD PLOTTS, HIS HEIRS, DEVISEES AND PERSONAL REPRESENTATIVES, AND HIS, THEIR OR ANY OF THEIR SUCCESSORS IN RIGHT, TITLE, AND INTEREST, UNKNOWN OWNERS OR UNKNOWN CLAIMANTS, THEIR HEIRS, DEVISEES AND PERSONAL REPRESENTATIVES AND THEIR OR ANY OF THEIR HEIRS, DEVISEES, EXECUTORS, ADMINISTRATORS, GRANTEES, ASSIGNS OR SUCCESSORS IN RIGHT, TITLE OR INTEREST AND ANY AND ALL PERSONS CLAIMING BY OR THROUGH THEM OR ANY OF THEM, AND "UNKNOWN OWNERS" (OR UNKNOWN CLAIMANTS), THEIR HEIRS, DEVISEES AND PERSONAL REPRESENTATIVES AND THEIR OR ANY OF THEIR SUCCESSORS IN RIGHT, TITLE AND INTEREST, JAMES L. PLOTTS, AND THE STATE OF NEW JERSEY, DEFENDANTS, AND IRMA HORROCKS, HARRY B. SHURTS, CLARENCE SCHEVREN, LUTHER GUISE, JANET C. CURRIN, JACOB S. CASTNER, AND GREGORY YOUNKIN, DEFENDANTS-RESPONDENTS. The Supreme Court of New Jersey. Argued January 18, 1990. Decided July 25, 1990. *445 Francis P. Sutton argued the cause for appellant. Michael V. Kerwin argued the cause for respondents. The opinion of the Court was delivered by POLLOCK, J. Twenty-six years ago we condemned the business of "heir hunting" as having "no social value." Bron v. Weintraub, 42 N.J. 87, 95, 199 A.2d 625 (1964). The Legislature has since characterized heir hunting as a "questionable scheme" operated by "intermeddlers," an "iniquitous practice," and as a "`racket.'" See infra at 450-451, 577 A.2d at 135-136; Statement Accompanying Sen. No. 291, L. 1967, c. 149. This case presents a variation on the Bron theme. *446 Plaintiff, Gordon Wattles, instituted an action to foreclose a tax-sale certificate on a 6.21-acre parcel of vacant land, which is adjacent to other land owned by the Wattles family in Lebanon Township, Hunterdon County. After entry of a default against "unknown owners," but before the entry of judgment, an heir hunter, National Asset Recovery (National), discovered out-of-state heirs of the last record owner, Edward Plotts. National entered an agreement with the Plotts heirs. Under the agreement, if the heirs were successful in upsetting the tax foreclosure and in obtaining title, National could sell the property and divide the net profits with the heirs, after reimbursing itself for its expenses. In the decisions below, the lower courts sustained the rights of the heirs to redeem the property. We granted Wattles' petition for certification, 117 N.J. 68, 563 A.2d 831 (1989). Although we agree that the heirs may redeem the property, we impose a constructive trust in favor of Wattles on National's interest. Accordingly, we modify the judgment of the Appellate Division, 230 N.J. Super. 254, 553 A.2d 365 (1990), and remand the matter to the Law Division. On December 13, 1969, Elizabeth Shields and her late husband, Richard, purchased from Lebanon Township for $1,131.59 a tax-sale certificate covering a 6.21-acre parcel of vacant land described on the Township's tax map as lot 10, block 57. The last record owner, Edward Plotts, apparently had not paid taxes on the property in this century. After Richard's death, Elizabeth Shields assigned the certificate to her son, plaintiff, Gordon Wattles. Wattles' lawyer conducted a sixty-year title search as required by N.J.S.A. 54:5-91. The lawyer also examined telephone books for Hunterdon and Warren Counties and discovered one James L. Plotts, whom he joined in the proceeding. Neither the title records nor James L. Plotts could provide any *447 information about the heirs of the last record owner, Edward Plotts. Consequently, Wattles instituted a tax foreclosure against "Unknown Owners" and served notice by publication in accordance with Rule 4:4-5. No one appeared in the proceeding, so Wattles took a default on July 9, 1986. By scanning the notice of publication in the newspapers, National learned of the foreclosure action. Through the examination of early twentieth-century census data and other unrecorded documents, National learned that Edward Plotts had died in Maryland in 1899, leaving two daughters. Through the residuary clause in his will, similar clauses in the wills of his two daughters, and a series of devises and intestate successions, defendants acquired their interests in the property. Nothing in the record indicates that the daughters of Edward Plotts, the intervening heirs, or defendants had ever heard of the property. Indeed, some of the defendants had never heard of Edward Plotts, and others barely knew of him. Having learned of the heirs, William Smith, National's president, wrote to them, soliciting their cooperation. In pertinent part, Smith's letter said: The heirs responded, and signed a form agreement prepared by National, stating that National *448 "In consideration for the services rendered and to be rendered" by National, the heirs agreed "to set over, transfer and assign to [National] fifty per cent in the net value of the [property]." The heirs retained the right to match any bona fide offer received by National. The parties also agreed that the heirs Both lower courts recognize that at the heart of this case is our decision in Bron, in which Woodbridge Township sold vacant lands for unpaid taxes in 1935, and in 1940 foreclosed the tax-sale certificates. The proceeding, however, was defective because it had omitted the last record owner, one Weintraub. Thereafter, Woodbridge conveyed the tract to a developer, who built and sold ten homes. In 1959, when one of the homes was resold, a title search revealed the failure in the original proceeding to have foreclosed the Weintraub interests. Consequently, Woodbridge instituted a second proceeding to foreclose those interests. After entry of a judgment fixing the date by which Weintraub's unknown heirs were to redeem, heir hunters, Hudson Trading Corp. and Frank Altomare, discovered the Weintraub heirs and wrote them a letter that this Court found to be "palpably deceptive." Bron, supra, 42 N.J. at 91, 199 A.2d 625. The hunter paid them the nominal sum of $50 each, or a total of $400 for their interests. In a powerful opinion, former Chief Justice Weintraub wrote: Recognizing that its action was unprecedented, the Court anchored the opinion in public policy. Id. at 96, 199 A.2d 625. The Court concluded that "[w]e have no doubt the common conscience condemns the conduct of Hudson and Altomare as undue interference with the rights of the householders." Ibid. In devising a remedy, the Court wrote: Here, the trial court ruled that defendants were heirs of Edward Plotts and entered final judgment permitting them to redeem. The Appellate Division affirmed. 230 N.J. Super. 254, 553 A.2d 365 (1989). It concluded that Bron did not provide Wattles with any basis for relief. As distinguished from Bron, in which the homeowners had purchased from the township after the foreclosure, the court found that no equities intervened in favor of Wattles. Noting that tax-sale statutes acknowledge the owner's right of redemption, the court saw "no reason why the heir of such an owner should be barred from his or her right of redemption simply because their right to redeem was brought to their attention by an heir hunter and they entered into a generous agreement with the heir hunter * * *." 230 N.J. Super. at 260, 553 A.2d 365. The court acknowledged the argument, originally recognized in Bron, that the last-minute intervention of heir hunters in tax-foreclosure proceedings would hinder the purchase of tax-sale certificates to the detriment of municipalities eager to receive tax revenues. It declared, however, that the potential detriment was a problem for the Legislature. Ibid. The court also found inapplicable N.J.S.A. 54:5-89.1, which provides in pertinent part: The Appellate Division recognized that National may have acquired an interest in the property under its contract with the heirs. 230 N.J. Super. at 259, 553 A.2d 365. Nevertheless, it found the statute inapplicable because the redeeming party was not the heir hunter, but the heirs themselves. Immediately following our decision in Bron, the Legislature amended the Tax Foreclosure Act to provide that under certain circumstances the owner of a single-family residence, title to which derives from a defective tax foreclosure, could obtain the outstanding interest of a previously-unknown owner. N.J.S.A. 54:5-104.100 to -104.103. Three years later, in response to an unreported Appellate Division decision that sought to limit Bron to its facts, the Legislature further amended the tax-sale law by amending N.J.S.A. 54:5-89.1. Thus, the statute prohibits anyone from becoming a party to a tax-foreclosure proceeding or from exercising the right to redeem if that person has acquired for a nominal consideration an interest in the property after the filing of a tax-foreclosure complaint. See Walter v. Sand, 191 N.J. Super. 362, 369, 466 A.2d 986 (App.Div. 1983) (holding that adjacent property owner had "bona fide interest" in becoming owner of subject property and that she could redeem tax-sale certificate on it because she had acquired her interest, albeit for a nominal consideration, before filing of tax-foreclosure complaint). In an unusually emphatic statement accompanying the statute, the Legislature denounced the practice of heir hunting. The statement reads: *452 In sum, the Legislature censured heir hunting because it hinders tax sales, thereby disturbing the collection of unpaid taxes. Furthermore, by taking advantage of the expenses incurred by the foreclosing party, the heir hunter creates a windfall. The words of the statute do not reach as far as the legislative statement. For example, the statute does not affect the interest of the heir, as distinguished from that of the heir hunter. Nor does it apply if the heir hunter acquires its interest before the institution of the foreclosure proceeding or if it pays more than a nominal consideration for that interest. Nothing in the statute, however, undercuts Bron. Although the statute might have been drawn more broadly to achieve its stated purpose, the operative provisions are consistent with the public policy declared in Bron. That policy supports tax titles and opposes the intrusion in tax-foreclosure proceedings "by third persons who seek only to further their own interests rather than the interests already on hand." 42 N.J. at 95, 199 A.2d 625. As the statement accompanying the legislation makes clear, the Legislature enacted N.J.S.A. 54:5-89.1 not to limit Bron, but to counteract an unreported Appellate Division opinion that failed to stop the practice of heir hunting "on equitable grounds." Statement Accompanying Sen. No. 291, L. 1967, c. 149. We conclude, therefore, that rather than undermining Bron, as defendants contend, N.J.S.A. 54:5-89.1 reinforced its policies. Our inquiry, therefore, focuses on the effect of Bron on the present case. Here, as in Bron, the foreclosure proceeding aroused the heir hunter's interest. In Bron, the heir hunter offered a nominal consideration of $50 each for the interests of the heirs. Here, the heir hunter agreed to share the net profits equally with the heirs. Given the present value of the property, assessed at $162,000 in 1988-89, the Plotts heirs stand to gain much more *453 than the Weintraub heirs in Bron. Unlike in Bron, moreover, the heir hunter did not take title in its own name. Instead, it relies on its contract with the heirs. That contract provides that the heirs will execute all instruments necessary to constitute the heir hunter a tenant in common with them. As an executory contract for the sale of an interest in land, the contract vests National with an equitable interest in land. Haughwout and Pomeroy v. Murphy, 22 N.J. Eq. 531, 546 (E. & A. 1871); 2 J.N. Pomeroy, Equity Jurisprudence § 368 (5th ed. 1941). Additionally, the contract authorizes National to sell the land, subject to the rights of the heirs to meet any good-faith offer. The net result is that the heirs have retained a bare legal interest and that National has acquired an equitable interest with certain incidents of absolute ownership, including the right to sell. In Bron, where the heir hunter had acquired legal title, we imposed a constructive trust on the heir hunter's interest and held that the homeowners could obtain that interest by paying to the heir hunter the $400 it had paid to the heirs. 42 N.J. at 96, 199 A.2d 625. For all practical purposes, National is in the same posture as the heir hunters in Bron. It has insinuated itself into the scene for the sole purpose of furthering its own pecuniary interests. As in Bron, to the extent that the heir hunter's efforts are designed to thwart the utility of tax sales and to reap windfall profits, they advance no social value. In this context, we are unpersuaded that the lack of intervening equities, such as were presented by the homeowners in Bron, should make a difference. We believe that the appropriate remedy, as in Bron, is to impose a constructive trust on the heir hunter's rights under the contract with the Plotts heirs. Consequently, on agreement to the terms of the contract between National and the Plotts heirs, including payment of fifty per cent of the net proceeds to the heirs after a sale, Wattles shall succeed to National's rights, including the right to sell the property at his discretion. The heirs, however, shall retain their interest under the contract, including their right to redeem, *454 their right to fifty per cent of the profits after expenses, and their right to match a bona fide offer. Before distributing the sale proceeds, Wattles and the heirs shall reimburse National for its reasonable expenses under the contract. The judgment of the Appellate Division is modified, and the matter is remanded to the Chancery Division. For modification and affirmance Chief Justice WILENTZ, and Justices CLIFFORD, HANDLER, POLLOCK, O'HERN, GARIBALDI and STEIN 7. Opposed None.