NJ Appeals Court: Bankster's Failure To Submit To Court Certification That It Notified Defendant Of Lawsuit Sinks Foreclosure Sale

Lexology reports:

• A recent New Jersey case, LaSalle Bank National Association as Trustee v. Plata, App. Div. 06-2-5386, shows how technical the notice requirements are for sheriff sales in New Jersey and how a lender can be tripped up by them.



• Martha Plata owned an interest in a property in Union City, New Jersey. LaSalle Bank obtained a final judgment for foreclosure and obtained an order for Plata’s property to be sold by the sheriff. LaSalle’s attorney sent a letter to Plata notifying her of the scheduled October 22, 2009 sheriff’s sale by both certified mail and regular mail.



• The sheriff’s sale was adjourned to March 25, 2010. That morning, Plata filed a bankruptcy petition, resulting in the sale being further adjourned. The sale was subsequently adjourned a number of times until finally taking place on May 27, 2010. LaSalle Bank bid the property at the sale so there were no third parties involved in the sale.



• Plata submitted a certification to the effect that at the time that she delivered a copy of her bankruptcy petition to the sheriff’s office, an employee of the sheriff’s office told her that the sale had already taken place on March 25, 2010. On May 3, 2010, Plata filed a motion in the trial court seeking to set aside the sale, which she believed had taken place on March 25, 2010.



• Plata certified that when she called the sheriff’s office on June 17, 2010, she was informed that the sale had taken place on May 27, 2010. Plata claimed she was never notified that the sale would take place on May 27, 2010, as she was under the impression that the sale had already taken place on March 25, 2010.



• LaSalle’s attorney provided the court with a copy of a letter informing Plata of a May 20, 2010 sheriff’s sale date and she testified that she provided Plata with a copy of a subsequent letter requesting postponement of the sale until May 27, 2010.



• Plata claimed that she never received these letters. Court rules provide that when a court authorizes the public sale of property, notice must be sent to the owner at least ten days prior to the date set for the sale by registered or certified mail. As mentioned above, LaSalle’s attorney specified that she had done this, and although the certified letter had never been claimed, the regular mail letter had not been returned.



• Subsequent notices of postponements of sheriff’s sales are not required by rule to be sent by certified or registered mail. Instead, in the case of adjournments, the rules and case law require that “some reasonable communication” be made informing the owner of the adjournment.



• Although LaSalle’s attorney testified as to sending the letters specifying the adjournments, she apparently failed to furnish the court with a certification stating that (1) the mailing was correctly addressed; (2) proper postage was affixed; (3) the return address was correct; and (4) the mailing was deposited in the proper mail receptacle or at the post office.



• The Appellate Division held that LaSalle’s failure to provide a certification as to all those items caused its notice to Plata to be defective. The court further noted that even had Plata seen the notice adjourning the sale to May 20, 2010, LaSalle did not show evidence that it had informed Plata of the further adjournment to May 27, 2010, when the actual sale took place.



• The court ruled that LaSalle’s failure to prove that it had properly sent the notices caused the sale to be defective, and the court ordered the sale to be vacated.



• The lesson here is that courts will strictly construe notice requirements for sheriff’s sales, so lenders have to be aware of this and be prepared to show how notices were delivered. One small, technical slip up could result in a sale being overturned.



• It should be noted that the Appellate Division stated at the end of the opinion that because the property was sold to LaSalle, and there was no evidence that innocent third parties had any interest in the property, the court was proceeding with vacating the sale. The result might have been different had a third party purchased the property at the sheriff’s sale.(1)

Source: Lenders beware - sheriff sale notices in New Jersey (may require subscription; if no subscription, GO HERE; or TRY HERE - then click the appropriate link).

(1) Had an innocent 3rd party purchased the property, the result probably should not have been any different. For a purchaser at a judicial foreclosure sale to avail itself of the protections accorded to a bona fide purchaser, said foreclosure sale purchaser arguably has the obligation to acquaint itself with the foreclosure file sitting at the local court house, and examine everything contained therein. Such a review of the file would reveal that the certification that was required to be submitted to the court was missing, thereby placing said purchaser on notice of the possible defect in the sale. Said purchaser such not enjoy the benefits of its own neglect.

Such a proposition has support in other jurisdictions. See, for example, Kordecki v. Rizzo, 106 Wis.2d 713, 317 NW 2d 479 (Wis. 1982), in which the court stated that had the party claiming bona fide purchaser status at a foreclosure sale examined the record prior to purchase, which he did not, the purchaser would have found the lis pendens recorded against the property being foreclosed. The lis pendens, in turn, would have led the purchaser to the county circuit court file on the foreclosure proceedings (the foreclosure court file number is typically noted on the lis pendens), and more specifically to the documents contained in said foreclosure file that, had they been examined, would have placed the purchaser on notice of defects in the process. Accordingly, the court ruled that the purchaser was not entitled to protection as a bona fide purchaser.

See also, Carnation Co. v. Midstates Marketers, Inc., 2 Kan. App. 2d 236, 577 P. 2d 827 (Kan. Ct. of App. 1978), supporting the proposition that an adequate title search of land requires the inspection/examination of a court file which is referred to in a recorded instrument affecting title to land.