NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court."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-2003-18T2
SF1 REAL ESTATE 1, LLC,
Plaintiff-Respondent,
v.
MARKO MELNITSCHENKO and LJUBOW MELNITSCHENKO, his wife,
Defendants-Appellants,
and
DEUTSCHE BANK, f/k/a BANKERS TRUST COMPANY AS TRUSTEE UNDER THAT POOLING & SERVICING AGREEMENT DATED AUGUST 1, 1992 FOR RTC MORTGAGE PASSTHROUGH CERTIFICATES SERIES 1992-10, CAROLD CORPORATION, and STATE OF NEW JERSEY,
Defendants. _____________________________________
Argued December 16, 2019 – Decided May 12, 2020
Before Judges Rothstadt and Moynihan. On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. F- 014704-16.
Thomas J.T.J. Legg argued the cause for appellants (Legg Law Firm LLC, attorneys; Thomas J.T.J. Legg, on the brief).
Adam D. Greenberg argued the cause for respondent (Honig & Greenberg, LLC, attorneys; Adam D. Greenberg, on the brief).
PER CURIAM
Defendants Marko Melnitschenko and Ljubow Melnitschenko appeal
from the Chancery Division's December 7, 2018 order denying their Rule 4:50-
1 motion to vacate a May 22, 2018 "Final Judgment of Tax Sale Certificate
Foreclosure" entered in favor of plaintiff S1 Real Estate 1, LLC. Plaintiff's
predecessor in interest, Stonefield Investment Fund III (Stonefield), purchased
a tax sale certificate in 2013 relating to one of defendants' investment properties
after defendants did not pay real estate taxes owed for 2012. It then pursued
foreclosure, and after defendants failed to respond to service of a second
amended complaint, failed to respond to other notices about the foreclosure, and
failed to exercise their right of redemption, the Chancery Division entered a
default judgment in favor of plaintiff's predecessor. Thereafter, plaintiff
substituted in for its predecessor and defendants filed a motion to vacate under
A-2003-18T2 2 Rule 4:50-1. On appeal, defendants contend that the Chancery judge abused her
discretion by refusing to vacate the judgment under Rule 4:50-1. We disagree
and affirm.
It was undisputed that in 2012, defendants, who are both octogenarians,
failed to pay real estate taxes owed for a residential property they owned in Fort
Lee, which was not their residence. A tax sale was held on December 4, 2013,
at which the certificate was sold to Stonefield for $12,636.77 at zero percent
interest plus a $39,300.00 premium to be paid by the purchaser.
On January 12, 2016, Stonefield sent a pre-foreclosure notice to
defendants by certified and regular mail addressed to a Guttenberg address, in
accordance with N.J.S.A. 54:5-97.1,1 indicating that it owned the tax lien on
defendants' property, which would cost $53,977.59 to redeem. That address was
defendants' last known address on file with the Fort Lee tax collector and tax
assessor where tax bills were sent for the subject property. Marko2 signed for
the certified mail on January 2016.
1 The service of this notice is not a condition to a tax sale foreclosure. Service of a notice is only required for a plaintiff to obtain a "search fee, counsel fee or other fee related to certified mailings." N.J.S.A. 54:5-97.1. 2 We refer to the individual defendants by their first name for clarity and to avoid any confusion caused by their common last name. A-2003-18T2 3 As no redemption was made, on May 25, 2016, Stonefield filed an "In
Personam Complaint in Foreclosure" against defendants. On September 9,
2016, defendants' then-attorney, Benjamin De Sena, wrote to Stonefield's
attorney requesting proof of service and a copy of the complaint. The letter
made reference to the complaint's docket number.
Defendants did not respond to the complaint. According to Ljubow, in a
certification she filed in support of her motion to vacate, that attorney was hired
only "to verify the sums alleged were still owed," which she thought would have
been paid from funds owed to defendants "from the unclaimed property section
of New Jersey." Moreover, she acknowledged that she owned multiple
properties, had "been the subject of other tax sales, however in each and every
time [she] . . . had an opportunity to pay them prior to [her] property being
taken," and for that reason "thought [she] had more time and never believed that
[her] property could be taken from [her] in such a short period of time. "
The other ten properties owned by defendants included their home in
Englewood Cliffs that was assessed at more than one million dollars, and
properties in Fairview, North Bergen, Guttenberg and Wantage. The other tax
sales impacted five preparties in North Bergen, one in Wantage, and one in
A-2003-18T2 4 Fairview, all relating to taxes that remained unpaid during the years from 2010
to 2013.
On September 23, 2016, Stonefield filed a second amended complaint to
add the assignee of a mortgage encumbering defendants' property. At that time,
Stonefield's attorney replied to De Sena's September 9, 2016 letter, enclosing
the second amended complaint and summons and requesting that defendants
"execute the [a]cknowledgment of [s]ervice." Defendants did not respond.
Stonefield then personally served defendants with the second amended
complaint on April 26, 2017. The affidavit of service indicated that Marko was
the individual served and described him as between fifty-one and sixty-five
years old, between 5'4" and 5'8" in height, weighed over 200 pounds, had white
skin, gray hair, and a beard. Defendants did not respond to the second amended
complaint.
After Stonefield requested that a default be entered against defendants on
June 14, 2017, a default was entered by the court, and plaintiff served defendants
with the filed default by regular mail. On October 4, 2017, Stonefield "filed a
motion for an order fixing the amount, time and place [of] redemption," which
was served on defendants by certified and regular mail at their Englewood Cliffs
A-2003-18T2 5 home, with Marko having signed for the certified mail on October 7, 2017.
Defendants did not respond to the motion.
The Chancery judge entered an order on October 30, 2017, fixing the
redemption price at $80,103.65, and set the date and place of redemption as
December 14, 2017, at the office of the tax collector in Fort Lee. This order was
served on defendants by certified and regular mail at their Englewood Cliffs
residence on November 16, 2017 and November 17, 2017. Defendants did not
seek to make redemption, and on May 22, 2018 final judgment was entered,
foreclosing defendants' right of redemption as to the property. 3
On August 8, 2018, plaintiff's counsel received a telephone call from
defendants' new attorney, who advised him that defendants "were never served
with a summons and complaint." According to plaintiff's attorney, defendant's
attorney "seemed quite surprised when [he learned] . . . that [defendants] had
been personally served and . . . even retained an attorney" who contacted
plaintiff's attorney earlier.
3 Before the entry of the default judgment, in March 2018, Stonefield assigned the tax sale certificate to plaintiff, which later obtained a court order permitting it to substitute for Stonefield. A copy of the motion and the order were served on defendants by regular mail. A-2003-18T2 6 On November 2, 2018, defendants filed a motion to vacate final judgment.
Defendants argued that they were not aware of the default judgment against them
until after it had been entered. In Ljubow's supporting certification, she stated
that she and her husband were "at times very confused as to whether or not th[e]
taxes [they had failed to pay] were in fact still owed as [they] had believed that
they may have been satisfied by funds . . . being held in the New Jersey
[u]nclaimed [p]roperty [f]und." She acknowledged that they "were at times
irresponsible for not timely paying [their] taxes," but contended that they "were
unsure what taxes were in fact due." She denied that she or Marko were ever
aware of the notices and complaints allegedly sent by certified mail and
indicated that the signature on the January 12, 2016 pre-foreclosure notice was
not Marko's.
Ljubow also explained that she and Marko suffered from multiple
hardships, including Marko being ill, the demise of their family business and
subsequent financial struggles, and that the Fort Lee property was occupied by
defendants' unemployed adult daughter who did not have anywhere else to live.
Ljubow did not state that the description of the individual in the affidavit of
service was not Marko nor did she supply any confirmation from a health care
provider about Marko's medical condition, especially during the years
A-2003-18T2 7 immediately preceding when the foreclosure complaint was filed. Notably,
during that time period, defendants had filed an answer and defended another
action affecting a different property located in North Bergen, in which they
signed a stipulation of settlement resolving the matter on March 30, 2017, one
month before being served in this matter.
On December 7, 2018, the parties appeared for oral argument. At oral
argument, Ljubow stated under oath that she handled all of the family's business
interests. In her oral decision supporting the denial of defendants' motion, the
Chancery judge first addressed the service issue and found that service was made
at defendants' residence on a competent adult, and was therefore proper. Next,
the judge addressed Marko's mental incapacity and rejected defendants' attempt
to compare the instant case to Bergen-Eastern Corp. v. Koss, 178 N.J. Super. 42
(App. Div. 1981), finding that the situation in that case was not analogous to the
situation here. Despite Marko's illness and the fact that he had been recently
hospitalized for several months, the judge stated the "matter goes back to 2012,"
and in that time, Ljubow stated that she handled all of the family's business
interests, and "reasonably could be expected to contact the local [taxing]
authority" regarding the money they owed. Although the judge agreed with
A-2003-18T2 8 defendants that "[i]t [did] seem harsh that an individual would lose half a million
dollar property for . . . $100,000 in debt," she concluded "that [was] the law."
The judge found no exceptional circumstances existed, that defendants
"had years to make this right," and although defendants' daughter resided at the
property, it was "not a residence," but an investment property, and "the bottom
line is that . . . [defendants were] not losing their home." The judge concluded
that there was no excusable neglect, and defendants' contention that Ljubow was
confused as to whether the money owed to her "in the State fund would" be
applied as a credit was unpersuasive. The judge noted that defendants were
represented by counsel throughout the proceeding and their prior attorney "was
well aware that this matter was pending," negating any argument that they were
unaware of the taxes owed. Additionally, nothing in the record described
Marko's physical or mental state throughout the action. This appeal followed.
On appeal, defendants argue that they were entitled to relief because they
established excusable neglect and a meritorious defense under Rule 4:50-1(a);
they "presented evidence that the foreclosure [judgment] was void justifying
relief under R[ule] 4:50-1(d) . . . or R[ule] 4:50-1(e) due to insufficiency of
careful security of . . . plaintiff's affidavit of inquiry and the windfall between
the tax sale certificate purchase and [the] property's value"; and they
A-2003-18T2 9 demonstrated exceptional circumstances under Rule 4:50-1(f). We find no merit
to these contentions.
We review a decision on a motion to vacate a default judgment under Rule
4:50-1 for "a clear abuse of discretion." US Bank Nat'l Ass'n v. Guillaume, 209
N.J. 449, 467 (2012). To warrant reversal, the movant must demonstrate that
the motion judge's "decision [was] 'made without a rational explanation,
inexplicably departed from established policies, or rested on an impermissible
basis.'" Id. at 467-68 (quoting Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88, 123
(2007) (Rivera-Soto, J., dissenting)).
In determining whether a party should be relieved from a judgment under
the Rule, courts must balance "the strong interests in finality of judgments and
judicial efficiency with the equitable notion that courts should have authority to
avoid an unjust result in any given case." Id. at 467 (quoting Mancini v. EDS
ex rel. N.J. Auto. Full Ins. Underwriting Ass'n, 132 N.J. 330, 334 (1993)). When
a trial court considers a motion to vacate a default judgment, the motion must
be viewed "with great liberality," and "every reasonable ground for indulgence"
is tolerated "to the end that a just result is reached." Mancini, 132 N.J. at 334
(quoting Marder v. Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div.),
aff'd, 43 N.J. 508 (1964)).
A-2003-18T2 10 Where a procedural violation is involved, additional considerations are
implicated, namely, "[t]he defendant's right to have the plaintiff comply with
procedural rules[, which] conflicts with the plaintiff's right to an adjudication of
the controversy on the merits." Abtrax Pharms., Inc. v. Elkins-Sinn, Inc., 139
N.J. 499, 513 (1995) (quoting Zaccardi v. Becker, 88 N.J. 245, 252 (1982)). In
all cases, however, "justice is the polestar and our procedures must ever be
moulded and applied with that in mind." Jansson v. Fairleigh Dickinson Univ.,
198 N.J. Super. 190, 195 (App. Div. 1985) (quoting N.J. Highway Auth. v.
Renner, 18 N.J. 485, 495 (1955)).
At the outset, and contrary to plaintiff's contention on appeal, we conclude
the Chancery judge correctly considered defendants' application under Rule
4:50-1. While the Tax Sale Law, N.J.S.A. 54:5-1 to -137, states that a tax sale
"judgment shall be final upon the defendants, . . . and no application shall be
entertained to reopen the judgment after three months from the date thereof, and
then only upon the grounds of lack of jurisdiction or fraud in the conduct of t he
suit," N.J.S.A. 54:5-87, Rule 4:50-1 governs a motion for relief from a tax sale
foreclosure judgment, notwithstanding N.J.S.A. 54:5-87. See M & D Assocs. v.
Mandara, 366 N.J. Super. 341, 351 (App. Div. 2004) (holding that Rule 4:50-1
is paramount); see also Town of Phillipsburg v. Block 1508, Lot 12, 380 N.J.
A-2003-18T2 11 Super. 159, 166 (App. Div. 2005) (interpreting the three-month deadline). The
guiding principles are that the statutory limitation and the underlying policy to
grant stability of foreclosure judgments informs a court's exercise of its
discretion under the Rule. Phillipsburg, 380 N.J. Super. at 166-67; Koss, 178
N.J. Super. at 44-45.
Rule 4:50-1 permits a court to "relieve a party . . . from a final judgment"
under certain circumstances. Implicated here are those described in subsections
(a), (d), (e) and (f) of the Rule.
Relying upon subsection (a), defendants contend that they demonstrated
"excusable neglect and a meritorious defense justifying relief" from the
judgment. Relying on Koss, defendants argue that their age, the insufficient
service of foreclosure notices, and Marko's poor health entitles them to relief.
They explain that Ljubow hired their prior attorney "only to determine whether
[tax lien] monies were owed on the property and not as to the foreclosure itself
since . . . she was never personally served." Additionally, they argue that the
initial pre-foreclosure notice was "sent to a visibly abandoned property" that was
not their place of residence and that other issues with service were present,
including whether Marko actually received the notices in light of the estimated
age and height on the affidavit of service. Defendants also argue that failure to
A-2003-18T2 12 follow the court rules regarding notice is also enough, on its own, to warrant
vacating the default judgment. Finally, defendants contend that plaintiff
"circumvent[ed]" their rights to due process.
Under subsection (a), relief may be afforded upon a showing of "mistake,
inadvertence, surprise, or excusable neglect." R. 4:50-1(a). Relief under section
(a) "requir[es] a showing of excusable neglect and a meritorious defense."
Guillaume, 209 N.J. at 468. "'Excusable neglect' may be found when the default
was 'attributable to an honest mistake that is compatible with due diligence or
reasonable prudence.'" Ibid. (quoting Mancini, 132 N.J. at 335).
Here, defendants have not demonstrated excusable neglect. Defendants
were served the second amended complaint properly under Rule 4:4-4(a)(1), as
it was delivered to defendants "dwelling place or usual place of abode with a
competent member of the household of the age of [fourteen] or over then
residing therein" accepting service. Nothing stated by Ljubow in her
certification undermined the validity of the service of process.
Additionally, defendants' reliance on Koss to argue that they demonstrated
excusable neglect is inapposite. In Koss, the defendant was an elderly woman
who had "a history of continuing, serious psychiatric problems with several
hospitalizations for mental illness" and "knew about the foreclosure action [but]
A-2003-18T2 13 did not understand its import." Koss, 178 N.J. Super. at 45-46. Here, although
both defendants are elderly and Marko appears to experience health issues
related to forgetfulness, Ljubow stated that she historically controlled the
business and financial aspects of the couple's numerous real estate properties.
In any event, unlike the Koss defendant, Ljubow provided no medical evidence
relating to Marko's alleged conditions.
Here, defendants confirmed that they are real estate investors who were
familiar with the need to pay taxes and with the Tax Sale Law's foreclosure
provisions. Despite Ljubow's claims of Marko's incapacity, they both defended
and resolved another litigation right before being served personally in this
matter. Under these circumstances, defendants' failure to respond was not an
"honest mistake" consistent with "due diligence," especially in light of their
receiving notices regarding the taxes owed and a pending foreclosure action over
a period of nearly six years. See Guillaume, 209 N.J. at 468-69 (quoting
Mancini, 132 N.J. at 335) ("Notwithstanding the repeated notices, the
[defendants] took no action to respond to the foreclosure complaint, and the
record reflects no excuse for their inaction."). Rule 4:50-1 "requires that courts
be indulgent of litigants who deserve such indulgences." Fineberg v. Fineberg,
309 N.J. Super. 205, 217 (App. Div. 1998) (rejecting a defendant's reliance on
A-2003-18T2 14 Koss after finding him to be "a sophisticated businessman who [was] involved
in multi-million dollar transactions, who, according to the record, [was]
maintaining or defending at least fifteen active lawsuits (some of which
involve[d] defendant acting pro se)"). Defendants did not establish themselves
worthy of that indulgence.
Even if defendants were able to demonstrate excusable neglect, they have
not demonstrated a meritorious defense. "Everybody knows that taxes must be
paid." Bron v. Weintraub, 42 N.J. 87, 91 (1964). Defendants admit to not
paying the taxes, that the taxes were owed, and that they retained an attorney
once the complaint was filed, albeit only to determine what was owed.
Afterward, and inexplicably, they took no action. Their assertion for the next
two years, that the taxes would have been paid from another source, is
unavailing. The record supported the Chancery judge's conclusion that there
was no basis to grant them relief from the judgment under subsection (a).
Defendants also contend that the trial court abused its discretion in not
granting relief under Rule 4:50-1(d), as the "insufficient notice and improper
service of process render[ed] the [judgment] . . . void." Additionally, because
of the windfall that plaintiff would realize due to the difference between the tax
sale certificate purchase and the property's value, "careful scrutiny of the
A-2003-18T2 15 affidavit of inquiry for service upon the [d]efendants is required." Here,
defendants argue it "pales in demonstrating due diligence to locate and properly
notice and serve" them.
Rule 4:50-1(d) provides relief from judgment when "the judgment or order
is void" and subsection (e) applies where "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."
We conclude, as did the Chancery judge, defendants were not entitled to
relief under section (d) because service of process was valid. As to defendants'
argument that the judgment is not equitable because there is a difference
between the tax sale and the property's value, we disagree. A property owner
who fails to pay taxes for several years and ignores multiple notices about his
or her failure is not entitled to equity. "A property owner knows that he[ or she]
must pay taxes on his[ or her] property, and that if he[ or she] fails to do so the
municipality will sell the property (or the tax sale certificate) for the price of
taxes due and owing." Township of Long Beach v. Lot No. 3, Block No. 9, 189
N.J. Super. 116, 125 (Ch. Div. 1983). "[E]quity aids the vigilant, not those who
sleep on their rights. . . ." Brunswick Hills Racquet Club, Inc. v. Route 18
A-2003-18T2 16 Shopping Ctr. Assocs., 182 N.J. 210, 228 (2005) (quoting Brick Plaza, Inc. v.
Humble Oil & Ref. Co., 218 N.J. Super. 101, 104 (App. Div. 1987)).
Defendants final argument is that "the totality of facts presented" justify
exceptional circumstances to grant relief under Rule 4:50-1(f) for the reasons
expressed in support of their arguments under subsection (a) and because they
offered to pay the full amount owed to plaintiff. We find no merit to their
contention.
The Rule permits a default judgment to be vacated for "any other reason
justifying relief from the operation of the judgment," R. 4:50-1(f), and "affords
relief only when 'truly exceptional circumstances are present,'" Guillaume, 209
N.J. at 468 (quoting Hous. Auth. of Morristown v. Little, 135 N.J. 274, 286
(1994)). In such circumstances, the rule is "'as expansive as the need to achieve
equity and justice' [but] . . . is limited to 'situations in which, were it not applied,
a grave injustice would occur.'" Id. at 484 (citations omitted). "The movant
must demonstrate the circumstances are exceptional and enforcement of the
judgment or order would be unjust, oppressive or inequitable." Johnson v.
Johnson, 320 N.J. Super. 371, 378 (App. Div. 1999); see also Badalamenti v.
Simpkiss, 422 N.J. Super. 86, 103 (App. Div. 2011).
A-2003-18T2 17 Considering that subsection (f) contemplates exceptional circumstances,
"each case must be resolved on its own particular facts." Baumann v. Marinaro,
95 N.J. 380, 395 (1984). "Among the factors to be taken into account . . . are
the 'extent of the delay in making the application for relief, the underlying reason
or cause, fault or blamelessness of the litigant, and any prejudice that would
accrue to the other party.'" In re Guardianship of J.N.H., 172 N.J. 440, 474
(2002) (quoting C.R. v. J.G., 306 N.J. Super. 214, 241 (Ch. Div. 1997)).
Here, defendants present no circumstances that were exceptional. The
subject property is not defendants' home. The loss of an investment property
does not weigh heavily in favor of them, as would the loss of their home,
especially in the context of the Tax Sale Law's goal of finality. See In re
Princeton Office Park LP v. Plymouth Park Tax Servs., LLC, 218 N.J. 52, 66
(2014) ("The legislative purpose is to 'aid municipalities in raising revenue,' by
attracting 'third parties to the opportunity to acquire . . . property.'" (Alteration
in original) (quoting Bron, 42 N.J. at 91-92)); see also Malone v. Midlantic
Bank, N.A., 334 N.J. Super. 238, 250 (Ch. Div. 1999) (citing N.J.S.A. 54:5-85)
("[T]he express policy of the Tax Sale [Law] is that it be liberally constructed
so as to bar the right of redemption, not preserve it, the goal being that
marketable titles to property be secured."), aff'd o.b., 334 N.J. Super. 236 (App.
A-2003-18T2 18 Div. 2000). The fact that they are permitting their daughter to live there without
paying rent does not change the nature of the premises.
Moreover, although defendants claim they offered to pay plaintiff for the
amount of taxes they undisputedly owed, they never tendered any amount that
was undisputedly owed at any point since 2012. The record therefore again
supports the Chancery judge's conclusion that "exceptional circumstances" were
not established.
Affirmed.
A-2003-18T2 19