Court Opinion

ID: 9954170
Source: CourtListenerOpinion
Date Created: 2024-03-25 19:01:22.873477+00
Date Added: 2024-06-11T08:11:52.241045
License: Public Domain

NOT PRECEDENTIAL

                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT
                                  _____________

                                       No. 23-2036
                                      _____________

                In re: JERSEY CITY COMMUNITY HOUSING CORP.,
                                                  Debtor
                                 _______________

                                CITY OF JERSEY CITY,
                                                  Appellant
                                   _______________

                                  108 STORMS JC, LLC
                                    _______________

                     On Appeal from the United States District Court
                               for the District of New Jersey
                                    (No. 2-22-cv-05277)
                    District Judge: Honorable John M. Vazquez (Ret.)
                                     _______________

                    Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                                   January 16, 2024

               Before: SHWARTZ, MATEY, and PHIPPS, Circuit Judges.

                                  (Filed: March 25, 2024)
                                     _______________

                                       OPINION
                                    _______________

       
        This disposition is not an opinion of the full Court and, under I.O.P. 5.7, does not
constitute binding precedent.
MATEY, Circuit Judge.

       The City of Jersey City (“Jersey City”) contracted with developer Jersey City

Community Housing Corporation (“JCCH”) to build affordable housing. But the project

languished, remaining unfinished after nearly a decade. Foreclosure proceedings, then

bankruptcy, ensued. The Bankruptcy Court allowed the property to be sold free and clear

to a third party. Jersey City now contests the sale, but we see no error and will affirm.

                                             I.

       In 2004, Jersey City and JCCH entered into a development agreement for multi-

unit housing. Jersey City conveyed two properties to JCCH. One, “the Storms Ave.

property,” is the subject of this appeal. The properties included 30-year affordable

housing deed restrictions, which set a cap on the rental price for units and the incomes of

the potential renter pool. The restrictions “run[] with the land,” binding “all subsequent

Purchasers” of the property. App. 196. And the restrictions survive a “judgment of

Foreclosure.” App. 197.

       The development was supposed to be “rent out ready” by May 2011 but remained

incomplete by 2019, prompting Jersey City to start foreclosure proceedings in state court.

In March 2021, Jersey City was awarded a Foreclosure Judgment for $773,006.01, with

$125,408.53 allocated toward the Storms Ave. property.1

       1
        The other property Jersey City conveyed to JCCH, “the Bergen Ave. property,”
was allocated the remaining $647,597.48.
                                           2
       But before the property could be sold in foreclosure, JCCH filed for Chapter 11

bankruptcy. JCCH as debtor then moved to sell the Storms Ave. property free and clear

under 11 U.S.C. § 363(b)(1) for $675,000. Controversy followed: there were competing

appraisals2 and the purchaser company, operated by Anne-Marie Griffiths, was just two

weeks old. Jersey City objected to the sale.

       The Bankruptcy Court allowed the sale to proceed (“Sale Order”). The Court

found that the proposed sale of the Storms Ave. property was in JCCH’s “best interests”

and that JCCH had “articulated sound business reasons” for the sale. App. 496. The price

“constitute[d] reasonably equivalent value,” App. 496, and the purchasing entity acted “in

good faith,” App. 497, and was “assured all the protections afforded” by statute, App.

498. While the Storms Ave. property could be sold to Griffiths “free and clear of all liens,

claims, interests and encumbrances,” App. 498, the Sale Order contained a catchall

provision that “[n]otwithstanding anything to the contrary contained herein, the low and

moderate income affordability requirements contained in the Foreclosure Judgment shall

remain in full force and effect.” App. 499.

       Jersey City appealed the Sale Order to the District Court, and JCCH moved to

dismiss the appeal as statutorily moot under bankruptcy’s good-faith buyer provision, 11

       2
         The property had been appraised in July 2022 at $1,040,000 “as-is.” App. 7. But
this appraisal did not consider the deed restrictions. A ten-month-old appraisal of
$400,000 at 50-percent complete was also submitted to the Bankruptcy Court.
                                              3
U.S.C. § 363(m).3 The District Court granted JCCH’s motion to dismiss and, in the

alternative, affirmed the Bankruptcy Court on the merits. Jersey City timely appeals.4

                                             II.

       Jersey City seeks to reinstate the affordable housing deed restrictions and

redistribute the sale proceeds.5 We find neither argument persuasive.

                                             A.

       Jersey City is correct that a § 363 sale order cannot extinguish the deed

restrictions. See 11 U.S.C. § 363(f). But as the Sale Order concludes: “Notwithstanding

anything to the contrary contained herein, the low and moderate income affordability

requirements contained in the Foreclosure Judgment shall remain in full force and

effect.”6 App. 499. As ordinarily read, the Sale Order maintains the deed restrictions

       3
          The provision allows a sale or lease to be reversed or modified so long as it 1)
“does not affect the validity of a sale or lease” to 2) someone who purchased the
“property in good faith,” 3) unless the “sale or lease w[as] stayed pending appeal.” 11
U.S.C. § 363(m).
        4
          The District Court had jurisdiction under 28 U.S.C. § 158(a)(1); we have
jurisdiction under 28 U.S.C. §§ 158(d) and 1291. We review the District Court’s ruling
de novo, In re Pursuit Cap. Mgmt., LLC, 874 F.3d 124, 133 n.14 (3d Cir. 2017), the
Bankruptcy Court’s legal determinations de novo, and its findings of fact for clear error,
id.
        5
          These two changes to the Sale Order Jersey City seeks fail on their merits, so we
do not address their statutory mootness. Jersey City also seeks to displace Griffiths as the
purchaser of the Storms Ave. property, but that is clearly a “central element” of the deal,
In re Pursuit, 874 F.3d at 139 (citation omitted), “that would claw back the sale from a
good-faith purchaser” and affect the sale’s validity, In re ICL Holding Co., 802 F.3d 547,
554 (3d Cir. 2015).
        6
          Jersey City is also incorrect that the Foreclosure Judgment Order lacks an
appropriate cross-reference to the restrictions which are available in the Registrar of
Deeds as listed in the Foreclosure Judgment Order and omitted from the discharged liens
in the Sale Order.
                                                 4
through this final sentence and the Foreclosure Judgment Order can be recorded as a

“[d]ocument[] affecting real property,” N.J. Stat. Ann. § 46:26A-2(h), along with the

“restrictions affecting the real property or its use,” N.J. Stat. Ann. § 46:26A-2(k).

Additionally, the Bankruptcy Court understood the restriction as one “that runs with the

land,” App. 709, and Griffiths herself understood that the property she was purchasing

included the deed restrictions. All showing the deed restrictions were left in place.

                                              B.

       Jersey City also argues that the Sale Order inappropriately limited its recovery to

$125,408.53. We disagree.

       In New Jersey, a “mortgage merges into the final judgment of foreclosure.”

Customers Bank v. Reitnour Inv. Props., LP, 181 A.3d 1038, 1045 (N.J. Super Ct. App.

Div. 2018) (citations omitted). The mortgage contract is then extinguished and all

contract rights in the mortgage “merge” into the final foreclosure judgment. Id. (citing In

re Roach, 824 F.2d 1370, 1377 (3d Cir. 1987)). Courts may adjust a final judgment for,

among others,7 any “reason justifying relief from the operation of the judgment or order.”

       7
         Acceptable reasons include:
       (a) mistake, inadvertence, surprise, or excusable neglect; (b) newly discovered
       evidence . . . which by due diligence could not have been discovered in time to
       move for a new trial . . . ; (c) fraud . . ., misrepresentation, or other misconduct of
       an adverse party; (d) the judgment or order is void; (e) the judgment or order has
       been satisfied, released or discharged, or a prior judgment or order upon which it
       is based has been reversed or otherwise vacated, or it is no longer equitable that
       the judgment or order should have prospective application; or (f) any other reason
       justifying relief from the operation of the judgment or order.
N.J. Ct. R. 4:50-1.
                                                  5
N.J. Ct. R. 4:50-1(f). While 4:50-1(f)’s “boundaries are as expansive as the need to

achieve equity and justice,” Ct. Inv. Co. v. Perillo, 225 A.2d 352, 356 (N.J. 1966), courts

have limited it to “relief in exceptional situations,” id. (emphasis added); see also Hous.

Auth. of Morristown v. Little, 639 A.2d 286, 292 (N.J. 1994).

       Jersey City argues that it would have asked the state court to apply 4:50-1(f) and

increase its recoverable amount. And because of the equitable interests at play and the

broad discretion of bankruptcy courts, Jersey City argues it would not be “uncommon”

for courts to use this provision to amend a final foreclosure judgment. Opening Br. 44–

45.

       But Jersey City identified only $125,408.53 of the total sought in foreclosure with

the Storms Ave. property, leaving the largest chunk of funds to the Bergen Ave. property.

And the Bankruptcy Court found that Jersey City “let [the Bergen Ave. property] go . . .

for a fraction of its value” in an “informed business decision.” In re Jersey City Cmty.

Hous. Corp., No. 21-15863-JKS, 2023 WL 3250267, at *11 (D.N.J. May 4, 2023)

(citation omitted). Meaning Jersey City has “only itself to blame if it is out of pocket.”

Resol. Tr. Corp. v. Griffin, 674 A.2d 1032, 1035 (N.J. Super. Ct. Ch. Div. 1994). These

circumstances are not so “exceptional” as to appropriately invoke 4:50-1(f).

       As Jersey City’s challenge to the Foreclosure Judgment Order would not prevail in

state court, its challenge to the Sale Order on this issue is also without merit.

                                             ***

       For these reasons, we will affirm.

                                               6