Daily Development for Thursday, March 25, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

CONSTITUTIONAL LAW; DUE PROCESS NOTICE: Non debtor cotenants have constitutional right to notice of judgment lien foreclosure of debtor cotenant's interest.

Burbach v. Beck, 318 N.J.Super. 228, 723 A.2d 13 (N.J. App. 1999)

Burbach and Beck owned property as tenants in common. A municipal utility provider obtained a $15,000 default judgment against Burbach relating to unpaid utility fees in a matter unrelated to this property. The creditor then noticed the property for execution sale under the judgment lien, and bought at the sale for $100. It sent actual notice to Burbach, but never discovered Beck's interest, although it was of record, and sent no notice to Beck. There was one posting of the sale on the property, a seventy three acre tract.

Later, when the creditor attempted to sell the property (which it believed it owned in sole fee simple) Beck discovered that the execution sale had occured. Beck alleged that the sale was invalid because he had received no notice, but in compromise offered to pay the creditor the total amount of its claim against Burbach in exchange for a transfer back to Burbach. The creditor refused, stating only that it would readvertise its interest in the property as a cotenancy interest and set a minimum purchase price of $50,000. (Note again that this was a municipal agency that bought the property on a $15,000 claim for $100.)

The trial court found for the creditor, concluding that Beck's cotenancy interest was not affected by the sale of Burbach's interest, and that therefore there was no reason to notify Beck.

On appeal: Held: Reversed.

The Appellate Division noted that the notice requirements for judgment executions in New Jersey were amended in 1994 in light of a (somewhat tardy) recognition of Constitutional Due Process provisions recognized by the U.S. Supreme Court as early as Mullane and reiterated in 1983 in Mennonite. Under the revised statute, actual notice must be provided to:

"(1) every party who has appeared in the action giving rise to the order or writ and (2) the owner of record of the property as of the date of commencement of the action whether or not appearing in the action, and (3) except in mortgage foreclosure actions, every other person having an ownership or lien interest that is to be divested by the sale and is recorded in the office of the Superior Court Clerk, the United States District Court Clerk or the county recording officer."

The court noted that the statute had always required notice to the "owner" of the subject property, and concluded that it was "plain" that "owner of record" included the owners of cotenancy interests in property owned by a judgment debtor. It noted the rule that, although tenants in common can transfer their interests separately, they own "undivided interests in the whole." The court stated: "It is consequently virtually tautological that each co-tenant named in a recorded deed is a record owner of the property so held. Each is, therefore, entitled to notice of an execution sale pursuant to [the statute.]

The court did not stop at a simple interpretation of the statute, however. It concluded that notice is also required under the Constitutional mandate of Mullane and Mennonite. Although a tenant in common does not suffer the loss of his interest when a cotenant's interest is executed upon, the court reasoned, the non debtor tenant nevertheless is adversely affected by such sale. Although the Westlaw text skips a line in the critical passage, the court appears to take the view that the danger of an involuntary partition that is likely to occur when a stranger acquires a cotenant's interest is a sufficiently adverse consequence to a tenant in common to warrant recognizing in the non debtor cotenant a Constitutional Due Process right to notice of a potential judgment lien foreclosure on the debtor cotenant's interest.

The court dismissed as "specious" the argument of the creditor that the statutory requirement that notice be given to the "owner" denoted only a requirement that one notice be sent to a single owner, and that this would suffice for notice to all owners in every case.

Comment 1: It is difficult to argue with the justice of the decision here, particularly in light of the special facts demonstrating that the agency was attempting to collect a windfall brought about by its own negligent title search. But the approach taken by the court in righting that wrong may have long term implciations that must be carefully evaluated.

Comment 2: Of course, the statute states "owner of the property." But what property? The property interest sold at judgment lien foreclosure is only that of the debtor cotenant. The nondebtor cotenant is always at risk that the debtor cotenant can sell his interest at any time to any person. How does that risk give rise to a property right?

If we were to take the position that any person whose property interest are jeapordized when the interest of a business associate is sold at judgment lien foreclosure, we would have to cast a much broader net than simply including cotenants. All manner of parties could suffer an adverse economic consequence when a party with whom they are dealing suddenly loses his property interest at a judgment lien foreclosure. Do we really aim to protect them all? If not, what is so vital about tenants in common?

Comment 3: The question gets even more problematic when the issue escalates to one of Constitutional proportions. At this phase of the argument, the court is not even pretending to be relying upon the statutory language. Instead, it is concluding simply that the cotenant's risk gives rise to a property interest of Constitutional magnitude. This is quite a chunk to bite off, and the consequence of such a ruling ought to be thoroughly evaluated, which the court does not appear to have done here.

Courts cannot right all wrongs. And not all wrongs are unconstitutional. The proper procedure here is for the legislature to decide whether non debtor cotenants have a right to notice of a judgment lien execution sale of a debtor cotenant's property. The editor thinks that the legislature should decide that such notice should be given. It is a fairer procedure, avoids possible misunderstandings, and may stir up bidders. But the fact that it is a good idea does not mean the court should impose it where the legislature didn't so intend and the Constitutional issues are hazy at best.

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