dissenting: I approach the question involved herein solely on the basis of the facts and the applicable law of New Jersey as stated and set forth in the report of the majority.
The question presented is whether petitioner realized gain in the taxable year 1940 on the sale of real property under a proceeding of foreclosure of a mortgage on such property. The question is divisible as follows: (a) Was gain so realized and, if so, (b) was it realized in the tax year 1940 ?
If the gain was not realized in 1940, the amount thereof is immaterial for the purposes of this proceeding, since in such event the gain would not be taxable in 1940, the year before us in this proceeding. Hence, I will advert first to division (b) of the question, namely, whether the gain, if any, was realized in 1940. Whether or not gain was realized in 1940 depends on whether the sale in respect of which the gain is claimed was consummated in 1940. The facts show that in August 1939 a judgment of foreclosure and sale was entered in the amount of the secured indebtedness and that the mortgaged property was ordered sold to satisfy the judgment recovered. The facts show further that the sale of the property under the judgment and order was made on October 17, 1939, to the mortgagee and that such sale was judicially confirmed on October 30, 1939. Under the law of New Jersey, as stated in the report of the majority, petitioner had no right of redemption from such sale. Therefore, the sale was fully consummated in 1939 and the petitioner was thereby and at that time divested of any title, right or interest to or in the property sold. From and after the confirmation of sale the purchaser owned the property.
In my opinion, based upon the indisputable facts above recited, the conclusion is inescapable that, whether petitioner realized gain or loss on the sale of the property, such realization occurred in the tax year 1939 and hence can not be taken into account in determining petitioner’s tax liability for the tax year 1940.
Whether or not the mortgage debt was extinguished by the sale price of the property or by the application thereto as a credit of the fair market value of the property at time of sale does not affect the time or event of consummation of the sale in the instant case as herein-above indicated. The conclusion of the foreclosure proceedings extinguished the mortgage and concluded the transaction of the sale of the property thereunder. If the proceeds (or credit) of the sale were insufficient to extinguish fully the secured debt, the deficiency would survive as an unsecured debt and whether or not enforced by recovery of a deficiency judgment it could not affect the time of consummation of the sale under foreclosure or the amount realized on such sale. A proceeding to recover a deficiency judgment, under the facts and state law as stated in the report of the majority herein, would constitute an action apart from and not a part of the foreclosure proceedings and would involve in no way the property sold under foreclosure or the sale price thereof.
Cases cited by the majority involving sales under mortgage foreclosure where a period of redemption obtains do not present facts comparable with those of the instant case and, in my opinion, are valueless as supports for the majority holding. In jurisdictions where a period of redemption obtains following a foreclosure sale the mortgagor can not be said to have been divested nor the purchaser invested with ownership until the redemption period expires. Thus in such jurisdictions the foreclosure sale can not of itself be considered a closed transaction. But the contrary is true in New Jersey, where the right of redemption is cut off by the foreclosure sale.
Also, the case of Lutz & Schramm Co. is cited and apparently strongly relied on in the majority opinion. In that case the conveyance of the mortgaged property to the mortgagee was made in consideration of the full satisfaction of the mortgage and the mortgage debt. Accordingly, the debt was canceled and the mortgage was satisfied of record. By agreement of the parties to the transaction the consideration for the conveyance was the cancellation of the debt and it was therefore correctly held by this Court that the amount of the sale price of the property was the amount of the debt so canceled. It was also correctly held in that case that the gain realized on the sale was so realized in the year of the sale. I believe that that case supports my individual views herein expressed rather than the holding of the majority.
For the reasons indicated it is my opinion that the gain, if any, to petitioner from the sale of the property in question was realized ha the year 1939 and hence can not be taxed to petitioner for the year 1940.