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Monday, May 20, 2024 | Back issues
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Class Alleges Conspiracy in Tax Lien Auctions

TRENTON, N.J. (CN) - A federal class action claims that 26 people, banks and corporations, "who are among the largest purchasers of tax sale certificates in the State of New Jersey," rigged bids at municipal tax lien auctions to assure that interest rates on property tax obligations would stay at the maximum 18 percent.

The named plaintiff is MSC, LLC, of Cherry Hill. "A Tax Sale Certificate was issued with respect to plaintiff's property, and such Tax Sale Certificate was purchased by one of the defendants pursuant to the conspiracy alleged herein," the complaint states. "As a result of the defendants' conduct alleged herein, the interest rate associated with plaintiff's delinquent tax obligation was artificially inflated and plaintiff was damaged thereby. Plaintiff is currently facing the prospect of foreclosure on its property by one of the defendants due to the TSC associated with its property."

Here's how it works, according to the complaint: "All real property owners in New Jersey are required to pay, on a quarterly basis, their respective municipal property taxes and/or charges for such municipal services as sewer and water services. When a property owner fails to make such payments, because, for example, of financial hardship, New Jersey state law allows the municipality to sell the delinquent obligation to an investor in an auction. This permits the municipality to receive monies so that it can meet its operating costs without having to raise additional revenues by increasing property taxes.

"The winning bidder at the auction receives a 'tax sale certificate' (hereafter 'TSC') which is ultimately recorded as a lien against the real property. There are a number of benefits and rights associated with the TSC including: (1) a first priority lien on the real property at issue; (2) the right to collect on the delinquent obligation; (3) interest and penalties (ranging from 2-6 percent) on the delinquent obligation; (4) and the right to foreclose on such property in order to collect the property tax obligation. Thus, the winning bidder has a significant security interest in the property which supersedes all other lienholders in such property. [Parentheses in complaint.]

"Each municipality in New Jersey holds such TSC auctions once per year. The bidding at the auction opens with the statutory maximum of 18 percent interest associated with the delinquent obligation. With each subsequent bid, the 18 percent interest rate is bid down, and in many cases, as a result of the bidding process, the interest rate is bid down to close to zero percent. Thus, the more bidding, the better it is for the property owner.

"However, since at least the beginning of 1998 continuing through the present, the defendants, who are among the largest purchasers of TSC's in the State of New Jersey, entered in an illegal agreement, combination or conspiracy whereby they would ensure there was little to no bidding at the auctions. Prior to each auction, the defendants would meet and allocate amongst themselves the delinquent property tax obligations up for auction, and agree to refrain from bidding on those which were not allocated to them. This resulted in there being only one bid at the auction, and therefore, the opening bid became the winning bid. This would ensure that the delinquent property tax obligation carried the maximum interest rate allowed - 18 percent - to the benefit of the defendants and to the detriment of the property owner. As a result of the defendants' illegal conduct alleged herein, real property owners in New Jersey have paid, or are being threatened to pay, tens of millions of dollars in interest which has been artificially inflated due to the defendants' illegal conduct.

"The Antitrust Division of the U.S. Department of Justice is currently conducting a criminal investigation into the activities of the defendants. At least seven of the defendants named herein have pled guilty to Sherman Act violations and have admitted to participating in the conspiracy alleged in this complaint."

The only way for a property owner to remove a tax lien from a tax sale certificate auction "would be to either pay the entire obligation, along with interest and penalties, or face foreclosure so that the lien hold could receive the amount associated with the lien from the sale of the real property," according to the complaint.

Here are the defendants: William A. Collins, David M. Farber, Chun Li, Isadore H. May, Richard J. Pisciotta Jr., Robert E. Rothman, Robert W. Stein, David Butler, Stephen E. Hruby, Crusader Servicing Corporation, Royal Tax Lien Services LLC, CCTS LLC, CCTS Tax Liens I LLC, CCTS Tax Liens II LLC, CCTS Capital LLC, DSDB LLC, Pro Capital LLC, Michael Fabrikant & Associates Inc., Royal Bancshares of Pennsylvania Inc., Rothman Realty Corp., M.D. Sass Investors Services Inc., M.D. Sass Tax Lien Management LLC, M.D. Sass Municipal Finance Partners - III LLC, M.D. Sass Municipal Finance Partners - IV LLC, M.D. Sass Municipal Finance Partners - V LLC and M.D. Sass Municipal Finance Partners - VI LLC.

MSC seeks damages for Sherman Act violations, and an injunction preventing the defendants from enforcing the artificially inflated interest rate that was bid on at the tax sale certificate auctions.

It is represented by Bruce Greenberg with Lite DePalma Greenberg, of Newark.

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