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Notification Requirements for Mortgagees at Sheriff's Sales

Mortgage foreclosure practice in the State of New Jersey is a relatively static practice. There are relatively few innovations in the field and new legal precedent is a rarity. That is why the New Jersey Supreme Court's recent decision in Summit Bank v. Thiel is so important. The Court in Thiel upheld the decision of the Appellate Division which required that a mortgagee who brought a property to sheriff's sale was to notify a potential third party bidder at the sheriff's sale of the amount of unpaid taxes and other municipal charges that may be outstanding against the subject premises. This is a departure from the long standing practice which simply required that a mortgagee notify a potential third party bidder at the sheriff's sale of any mortgage liens or judgments which may encumber the property.

Sale Subject To Unpaid Taxes

Furthermore, R & H Partnership denied that it knew of the amount of unpaid taxes from any source prior to the sale. R & H Partnership argued that the mortgagee failed to comply with the requirements of N.J.S.A. 2A:61-16 by not listing the amount of the unpaid tax liens encumbering the property in the sale notice and, therefore, it was entitled to be relieved of its bid. The mortgagee, Summit Bank, opposed R & H Partnership's request on the grounds that N.J.S.A. 2A:61-16 is intended to protect bidders from undisclosed liens such as mortgages and judgment liens which can only be discovered by a potential bidder if they obtained a title search. Summit Bank noted that most properties in foreclosure actions are encumbered by liens for unpaid taxes, and that a potential bidder for said properties can obtain information regarding the amount due from a municipality with relative ease.

Due Diligence Required

The Appellate Division held that N.J.S.A. 2A:61-16 allows a purchaser at a sheriff's sale to be relieved of its high bid before delivery of the deed if the notice of sale fails to list any lien or encumbrance on the property, including the amount of unpaid real property taxes. In making its determination, the Appellate Division read the statute literally and concluded that the statute was adopted to shift the burden of unearthing the existence and approximate amount of all superior liens from bidders to the selling mortgagee. The Appellate Division's decision basically determined that a potential bidder had no obligation to perform its own due diligence despite the fact that the sale was conducted with an announcement that the property was subject to outstanding tax liens, and that the prospective bidder could easily obtain information regarding the amount of the tax liens on their own.

Summit Bank appealed the determination of the Appellate Division. However, the New Jersey Supreme Court upheld the decision with two slight modifications. First, the Court noted that a mortgagee can give notice of any existing realty tax lien by inserting the amount of delinquent realty taxes due as of a specific date in the notices and advertisements required by law. Furthermore, the Court held that a mortgagee need not update the tax lien information in the event that the scheduled sale date is adjourned.

Multiple Tax Search Recommended

The New Jersey Supreme Court's decision in Thiel provides for an interesting dilemma for mortgagee's with existing scheduled sheriff's sales. The Court's decision was rendered on October 28, 1999. In general, it takes sixty to ninety days from the date that the Writ of Execution is forwarded to the Sheriff's office to schedule a sale. Thus, sales are just now being scheduled for files where the writs were sent to the Sheriff just before the Court's decision. In most of these cases, the sales notices will not contain any reference to the amount of unpaid realty taxes owed on the property. Unlike some practioners in this field, rather than canceling the sale and republishing the sale notice, Hill Wallack will obtain an updated municipal tax search and announce at the sale the amount due, in any, for unpaid realty tax assessments.

As noted by the Appellate Division, if R & H Partnership knew of the approximate amount due for unpaid taxes and encumbrances prior to the sale, it would not be entitled to be relieved of its high bid regardless of whether the mortgagee complied with the terms of N.J.S.A. 2A:61-16. Hill Wallack now obtains updated municipal tax searches on all properties once Final Judgment and a Writ of Execution has been entered or once the automatic stay of the United States Bankruptcy Court has been lifted in order to include the most recent tax information in the notice of sale.