FWDSL & ASSOCIATES, LP VS. RICHARD BEREZANSKY (F-033373-15, SOMERSET COUNTY AND STATEWIDE)

• Court: New Jersey Superior Court Appellate Division
• Decided: December 5, 2017
• Docket: A-5385-15T2
• Status: Published

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-5385-15T2

FWDSL & ASSOCIATES, LP,

Plaintiff-Appellant,

v. APPROVED FOR PUBLICATION

RICHARD BEREZANSKY, DONNA December 5, 2017 BEREZANSKY, wife of Richard Berezansky, and STATE OF NEW APPELLATE DIVISION JERSEY,

Defendants,

and

BANDI PROPERTY GROUP, LLC,

Intervenor-Respondent. ___________________________________

Argued November 14, 2017 – Decided December 5, 2017

Before Judges Fisher, Fasciale and Sumners.

On appeal from Superior Court of New Jersey, Chancery Division, Somerset County, Docket No. F-033373-15.

Keith A. Bonchi argued the cause for appellant (Goldenberg, Mackler, Sayegh, Mintz, Pfeffer, Bonchi & Gill, attorneys; Mr. Bonchi, of counsel and on the brief; Elliott J. Almanza, on the brief).

Michael Burns argued the cause for respondent (Burns & Isen, LLC, attorneys; Mr. Burns, on the brief). The opinion of the court was delivered by

FISHER, P.J.A.D.

Following the Supreme Court's admonition more than fifty

years ago that "heir hunting" was of "no social value," Bron v.

Weintraub, 42 N.J. 87, 95 (1964), the Legislature amended the

applicable statutes in a way that prohibited, as the Court later

observed, "anyone from becoming a party to a tax-foreclosure

proceeding or from exercising the right to redeem" if that person's

interest in the property was "acquired for a nominal

consideration," Wattles v. Plotts, 120 N.J. 444, 450 (1990). More

recently, the Supreme Court recognized that the Tax Sales Law1

"does not prohibit a third-party investor from redeeming a tax

sale certificate" so long as the investor "pays the property owner

more than nominal consideration for the property." Simon v.

Cronecker, 189 N.J. 304, 311 (2007). Against that backdrop, we

reject the foreclosing plaintiff's contention that Cronecker

renders unlawful profit-sharing agreements like that formed

between the intervenor and the property owners here, as well as

its argument that the former only obtained title and a right to

redeem by providing the latter with only nominal consideration.

1 N.J.S.A. 54:5-1 to -137.

2 A-5385-15T2 At a 2013 auction, plaintiff FWDSL & Associates purchased a

tax sale certificate on Richard and Donna Berezansky's Manville

home. After waiting the required two years and paying all accruing

municipal taxes, plaintiff filed a foreclosure complaint in

October 2015 against the Berezanskys, as well as the State of New

Jersey, which possessed a $70,000 judgment against Richard

Berezansky. On February 25, 2016, the court entered an order

setting the date, time, and place for redemption. The following

month, prior to the expiration of the time for redemption, Bandi

Property Group – claiming it held title and was a party to a

profit-sharing agreement with the Berezanskys – moved to intervene

and redeem.

In so moving, Bandi first explained how it came to be involved

with the property. Bandi claimed it learned from public records

that: the "equalized assessed value of the [p]roperty is

$314,792.13"; the property was encumbered by approximately $43,000

in tax liens; and the State's $70,000 judgment against Berezansky

was the "only other known judgment" with a potential to affect

title. Bandi explained it had offered to purchase the property

from the Berezanskys and described the discussions leading up to

its eventual financial arrangement with the Berezanskys.

Because the Berezanskys advised they could not afford to pay

off the outstanding tax lien, Bandi proposed a profit-sharing

3 A-5385-15T2 agreement in exchange for Bandi's "satisf[action] [of] all liens

and judgments affecting title" and payment to the Berezanskys of

$10,000. To obtain clear title, Bandi agreed, by way of a profit-

sharing agreement, to "improve the [p]roperty to maximize its

resale value" and "cause the property to be sold at a price

reflecting the fair market value." Bandi also agreed to give the

Berezanskys "a rent-free use and occupancy period through July 2,

2016." Once the property sold, and "certain fixed expenses . . .

deducted," the net proceeds would be divided: thirty-five percent

to Bandi and sixty-five percent to the Berezanskys.

Chancery Judge Margaret Goodzeit concluded, in a thorough and

well-reasoned written decision, that the consideration given by

Bandi for and the benefits obtained by the Berezanskys from the

profit-sharing agreement were not nominal. Plaintiff appeals the

order entered in Bandi's favor, arguing, among other things, that

the judge should not have found the profit-sharing agreement lawful

within the meaning of the legal authorities cited in the opening

paragraph of this opinion because:

I. THE PROFIT[-]SHARING AGREEMENT MODEL IS CONTRARY TO PUBLIC POLICY.

II. THE CONSIDERATION FROM BANDI IS ILLUSORY AND ULTIMATELY PAID FOR BY DEFENDANTS OUT OF THEIR OWN EQUITY.

III. IT IS IMPOSSIBLE TO KNOW HOW MUCH 65% OF NET PROCEEDS WILL COME TO, HENCE IT IS

4 A-5385-15T2 IMPOSSIBLE TO CONDUCT A MEANINGFUL NOMINAL CONSIDERATION ANALYSIS.

IV. THE OUTCOME IN THIS CASE SHOULD BE CONTROLLED BY WATTLES, AND THE TRIAL COURT ERRED IN CONCLUDING OTHERWISE.[2]

We reject these arguments.

N.J.S.A. 54:5-89.1 bars a party from intervening in a tax

foreclosure action when claiming a right in the property that was

acquired "for a nominal consideration." In considering the effect

of this statute and the profit-sharing agreement on this

foreclosure action, we start by rejecting plaintiff's argument

that the Supreme Court has determined that N.J.S.A. 54:5-89.1

renders unlawful all profit-sharing agreements in this setting.

To the contrary, the Court recognized that the statute was not

designed to bar investors from "helping property owners in

desperate need of financial assistance." 189 N.J. at 328. There

is nothing contained in the Cronecker decision that limits the

form such financial assistance must take or that which it may not

take. The focus, instead, must be aimed in the direction of the

consideration conveyed. See id. at 330-31.

In defining what constitutes nominal consideration, the Court

rejected previously-recognized, mathematical approaches, id. at

2 We have renumbered plaintiff's arguments.

5 A-5385-15T2 333-34,3 in favor of "a more flexible, under-all-the-circumstances

approach that will keep the focus on the benefit to the property

owner facing forfeiture of his land," id. at 334-35. Consequently,

the Court directed courts to be "reluctant to strike-down a third-

party financing arrangement that will provide some meaningful

monetary relief to the property owner." Id. at 335.4 We thus reject

3 The Court rejected both "the so-called percentages test" recognized in Savage v. Weissman, 355 N.J. Super. 429, 439 (App. Div. 2002), and the economic realities test and the windfall profits test discussed in Corestates/N.J. Nat'l Bank v. Charles Schaefer Sons, Inc., 386 N.J. Super. 554, 564-65 (App. Div. 2006). See Cronecker, supra, 189 N.J. at 333-34. In so holding, the Court recognized that "[s]trict mathematical equations cannot address the varying circumstances that may bear on a fair determination of the issue," and emphasized that courts must only ascertain whether the financial arrangement with the intervenor provides the property owner with "some meaningful monetary relief." Id. at 335. 4 We must approach such disputes by recognizing that the contestants – that is, the tax sale certificate holder and the intervenor – pursue the same goal: a lucrative return on their efforts. Id. at 330. Their professed concerns about the municipality's collection of taxes or the property owner's right to freely convey title are certainly of interest to the court and are often served when these market forces are applied. But, in reality, the contestants' interests in those matters are secondary at best to what they are truly after, and we should not be swayed or distracted by either contestant's attempt to seize the moral high ground in such matters. Indeed, if it was actually out to shield the Berezanskys from entities such as Bandi, plaintiff could have taken steps to protect them as well as its own interests. As the Supreme Court noted in Cronecker, the tax sale certificate holder always "control[s] [its] own fate[]." Id. at 329. Plaintiff here, like the plaintiffs in Cronecker, "could have beat [the third-party investor] to the punch and offered to purchase title to the property directly from the owner[]." Id. at 330.

6 A-5385-15T2 the argument that our jurisprudence calls for a blanket rejection

of all profit-sharing agreements in this context.

The Cronecker Court left no doubt that it is not the nature

of the financial arrangement that matters but whether the

consideration given to the property owner was only nominal. The

Court emphasized that the statute does not "prohibit a third-party

investor, who intervenes timely in a foreclosure action, from

purchasing the property owner's interest for more than nominal

consideration," id. at 331, and that which is "more than nominal

consideration" is that which "is not insubstantial under all the

circumstances" but rather "an amount, given the nature of the

transaction, that is not unconscionable," id. at 335. In defining

what the Legislature meant by nominal consideration, the Court

referred not only to what has historically been viewed as nominal,

such as $25 or $50, but also to the fact that the Legislature had

responded to Bron, where the intervenor offered the owner only

"one-fiftieth" of the property's value. Id. at 332-33. In assessing

the Legislature's intentions in N.J.S.A. 54:5-89.1, the Court

ultimately recognized that a court's view of nominal consideration

should be "more flexible" and should consider all the circumstances

with an eye toward the benefit received by the owners when

considering they are "facing forfeiture of [their] land." Id. at

334-35. We take this to require not only a traditional examination

7 A-5385-15T2 of whether the consideration is more than "small" or "trifling,"

id. at 332, but also an examination of that question from the

property owner's standpoint. In this latter respect, we cannot

avoid comparing the benefits conveyed by the financial arrangement

between Bandi and the Berezanskys and the catastrophic financial

impact facing the Berezanskys if their agreement with Bandi is not

given effect.

Consequently, we agree with the chancery judge that Bandi

gave more than nominal consideration; the Berezanskys are far

better off with the Bandi agreement than otherwise. In fact,

plaintiff concedes that the $10,000 payment provided the

Berezanskys with "a real and tangible benefit." That payment alone

constitutes more than "nominal consideration" for entry into the

profit-sharing agreement, and any doubt about the legal question

posed is erased by Bandi's additional obligations to: pay the

outstanding approximate $43,000 tax lien; satisfy the State's

$70,000 judgment against Richard Berezansky; and allow the

Berezanskys with a rent-free, use-and-occupancy period. Although

an amount equal to that paid by Bandi to satisfy the tax lien and

judgment will be recouped by Bandi from the sale proceeds prior

to the sixty-five/thirty-five split – thus offering some support

for plaintiff's argument that part of the consideration may appear

illusory – the initial $10,000 payment and the use-and-occupancy

8 A-5385-15T2 agreement are certainly real and more than a trifle, and we do not

interpret the profit-sharing agreement as allowing reimbursement

of those items to Bandi off the top of the sale proceeds.5

To summarize, Bandi's financial obligations are not

insubstantial and certainly represent more than nominal

consideration. Even though the tax payments, the repairs, and the

satisfaction of the $70,000 judgment will be returned to Bandi

following the property's sale, their payment prior to the sale

constitutes a benefit that exceeds the nominal threshold; indeed,

should the property never sell for a profit, the Berezanskys would

obtain a considerable benefit from being relieved of the $70,000

judgment.6 And – not to be ignored – the Berezanskys secured a

5 Plaintiff contends that the use-and-occupancy agreement was not free and was at least partially illusory. It argues that the profit-sharing agreement requires a retention of $5000 from the Berezanskys' share of the net proceeds to be released to the Berezanskys only upon the termination of their occupancy; in short, plaintiff claims that the Berezanskys are actually paying for their use and occupancy of the property. We disagree. The provision does call for a $5000 retention, but that stipulation's express purpose was to ensure the Berezanskys' timely departure at the conclusion of the use and occupancy period and also to further answer for any property damages that might occur during that period. So long as the Berezanskys depart when promised without causing any damage to the premises, that $5000 remains theirs. 6 Plaintiff discounts the significance of the obligation to satisfy the $70,000 judgment by arguing "there is no evidence that the State is attempting to enforce [this] judgment." There is no dispute that the judgment exists and is outstanding; being free of this debt can hardly be viewed as something nominal.

9 A-5385-15T2 right to recover sixty-five percent of the net proceeds that would

not be available if the Bandi agreement were found ineffectual or

unlawful. We are satisfied that the form of the Bandi-Berezansky

financial arrangement was not barred by N.J.S.A. 54:5-89.1 as that

statute has been interpreted and enforced by our Supreme Court,

and that Bandi gave more than nominal consideration in obtaining

title and the right to redeem.

Affirmed.7

7 During the appeal's pendency, plaintiff moved to strike Bandi's brief and appendix because Bandi included materials outside the trial court record. In response, Bandi cross-moved to supplement the record, and plaintiff opposed that motion. Another panel of the court reserved, leaving those cross-motions for this panel to decide. Because we have decided this appeal solely through consideration of the factual information provided to the trial court, we deny both motions. To be clear, we have denied the motion to supplement; in denying plaintiff's motion, we have not stricken Bandi's brief or appendix but have simply disregarded any materials and arguments based on materials not put before the trial court.

10 A-5385-15T2