by: Peter J. Gallagher (@pjsgallagher)
Tax sale foreclosures are rarely that interesting. This is purely my opinion, and I understand that buying tax sale certificates can be a lucrative trade, but I think I am probably not alone in saying that the field tends to be a bit dry. This is not always the case, however, and the best proof of this might be the recent decision in Lien Times, LLC v. Rader. (It is not what makes the case interesting, but Lien Times is a great name for an entity that buys tax liens.)
Lien Times started out with a fairly routine set of facts. Defendants fell behind on the taxes for their home, so the township issued a Certificate of Sale for unpaid municipal tax liens. Plaintiff purchased the Certificate of Sale. Plaintiff eventually foreclosed on the lien and the property was auctioned at a sheriff's sale . This is where it gets interesting.
The winning bid at the sheriff's sale was $302,000 and the winning bidder deposited $65,000 to secure the bid. According to the Appellate Division: "Pursuant to what is represented to be a common practice at sheriff's sales, the successful bidder had not yet formed the legal entity, '38 Bonnell Lane, LLC,' that would take title to the property, so as to avoid unnecessary expenses if the bid turned out to be unsuccessful." Seizing on this practice, one of the Defendants ran out, on or about the date of the sheriff's sale, and incorporated "38 Bonnell Lane, LLC" himself. Defendants had not purchased the property at the sale, instead, they found out that the entity that was the winning bidder at the sale intended to take title in the name of "38 Bonnell Lane, LLC" and preemptively incorporated that entity before the winning bidder could do so. When this was brought to the attention of the trial court, it granted an application to allow the name of the winning bidder to be changed to "38 Bonnell Randolph, LLC."
Defendants appealed, arguing, among other things, that the winning bidder had no right to place a bid under the name of an LLC that was yet to be formed. The Appellate Division rejected this argument along with the rest of Defendants' arguments. It held that the remedy of reformation was equitable and well within the trial court's authority and discretion. This was particularly true since the Appellate Division agreed with the trial court that Defendants incorporated "38 Bonnell Lane, LLC" solely to frustrate the sale of their residential property.
While this certainly seems like the correct decision, you have to give Defendants some credit for creativity.
Pete's Take 