A New Jersey appeals court has ruled that an intervenor in a tax sale foreclosure may become a party to the proceedings by offering a profit-sharing deal to the distressed property owner.

The appeals court in FWDSL & Associates v. Berezansky affirmed a Somerset County ruling in favor of an intervenor, Bandi Property Group. The decision rejected the plaintiff's claim that intervention under such circumstances runs contrary to a 2007 Supreme Court decision barring intervention by parties who acquire an interest by paying only nominal consideration to the property owner.

The Dec. 5 decision could undermine the tax sale system by making it more profitable to be an intervenor than a purchaser of tax sale certificates, said Keith Bonchi, the lawyer for plaintiff FWDSL.

The case stemmed from a 2013 tax sale where FWDSL bought a certificate for unpaid property taxes on the home of Richard and Donna Berezansky in Manville. The couple failed to redeem the certificate, and after waiting the required two years and paying subsequent taxes on the property, FWDSL filed a foreclosure complaint in October 2015 against the Berezanskys. The complaint also named the state of New Jersey, which had a judgment for $70,000 against Richard Berezansky.

In February 2016, Bandi moved to intervene, asserting it held title and was party to a profit-sharing deal with the Berezanskys.

Public records put the assessed value of the Berezanskys' property at $314,792. Besides the $70,000 owed to the state, the property was encumbered with $43,000 in tax liens. Because the Berezanskys said they could not pay their tax liens, Bandi's agreement with the property owners called for Bandi to pay off the liens and judgment and to pay the Berezanskys $10,000. The agreement also called for Bandi to perform certain renovations on the property and to sell it at fair market value, with the couple free to stay in the house rent-free until July 2, 2016, Upon sale of the property, 65 percent of net proceeds went to the Berezanskys and 35 percent to Bandi.

Chancery Division Judge Margaret Goodzeit ruled that the benefits obtained by the Berezanskys in the deal were not nominal. On appeal, FWDSL claimed that the profit-sharing deal is contrary to public policy, and that it is impossible to determine whether the property owners' compensation in the deal was nominal or not.

On appeal, FWDSL contended that the actions of Bandi were barred by the Supreme Court's 2007 decision in Simon v Cronecker, which said that tax sales law ”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.”

But Appellate Division Judges Clarkson Fisher Jr., Douglas Fasciale and Thomas Sumners Jr. rejected that assertion. Fisher, writing for the panel, noted that the Cronecker court called for a “flexible” review of compensation in such cases that should consider “all circumstances with an eye toward the benefit received by the owners when considering they are facing foreclosure of their land.”

“We take this to require not only a traditional examination of whether the consideration is more than 'small' or 'trifling,' 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,” Fisher said.

Being relieved of the $70,000 judgment and securing a 65 percent share of after-sale proceeds amount to more than nominal consideration for the Berezanskys, the court said.

Bonchi, the plaintiff's lawyer, said he believed some of the investors offering profit-sharing deals to homeowners facing tax sale foreclosure fail to honor their commitments, and added that homeowners would not resort to such an alternative if they obtained legal advice first.

“These people aren't the Robin Hoods saving people that they hold themselves out to be,” said Bonchi, of Goldenberg, Mackler, Sayegh, Mintz, Pfeffer, Bonchi & Gill in Northfield.

Michael Burns of Kraemer Burns in Springfield represented intervenor Bandi. He said he is a part-owner of the company. Burns said that businesses offering profit sharing to homeowners facing tax foreclosure “is a business that has been around for a while,” and he added that the decision “cleared up one of the issues that lien holders have been attacking us on.”

Burns rejected his adversary's assertion about intervening parties offering profit sharing to property owners in tax foreclosure cases, and called the sector “as robust as it ever has been” despite the increasing popularity of that business model. Burns also said some people operating in that sector “don't always do things right” but added that he has no reason to think that “this business is any different than any other business.”