Court Opinion

ID: 4467952
Source: CourtListenerOpinion
Date Created: 2019-12-27 15:06:25.301308+00
Date Added: 2024-06-11T14:35:17.163802
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE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.
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                                       3
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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                                         6
      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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                                  7
            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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                                         8
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."

                                                                            A-0734-18T2
                                         9
      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."

                                                                          A-0734-18T2
                                       10
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

                                                                             A-0734-18T2
                                        11
cost to redeem the Certificate and the value of Deutsche Bank's interest in the

Property.

      Affirmed.

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