Municipality Need Not Negotiate With Mortgage Holder Before Condemning Property

By: Peter J. Gallagher

Last year, we told you about a decision from the Appellate Division holding that a condemning authority does not have to engage in bona fide negotiations with a mortgage holder that has obtained final judgment on the property that the authority is seeking to condemn. Click here for the prior post. The Supreme Court has now affirmed the Appellate Division’s decision.

Under New Jersey law, before condemning real property, a condemning authority must, among other things, engage in bona fide pre-litigation negotiations with the party that "owns title of record to the property."  N.J.S.A. 20:3-6. Prior case law had made clear that this limitation meant that a condemning authority was not required to negotiate with a leaseholder or some other party that might have an "interest" in the property, but was instead required to negotiate only with the record title owner. In Borough of Merchantville v. Malik & Son, LLC, however the Supreme Court was faced with a slightly different question — whether a municipality needs to negotiate with an entity that held the mortgage on the underlying property, had obtained final judgment of foreclosure against the title owner, and was on the verge of taking the property to sheriff’s sale. The Supreme Court ruled that it does not.

 

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Eminent Domain Reform Advances In The Garden State

by:  Peter J. Gallagher

New Jersey is one step closer to updating its eminent domain laws for the first time since the U.S. Supreme Court handed downs its landmark Kelo v. City of New London decision in 2005. On March 4, 2013, the Senate Community and Urban Affairs Committee voted unanimously to approve a bill (S-2447) that would, according to a press release from Senate Democrats, “create a two-track system for redevelopment, establishing separate requirements for redevelopment projects that would involve condemnation and for those that would not.” The two tracks would protect homeowners whose properties might otherwise be subject to condemnation, while also creating a more streamlined process for municipalities undertaking redevelopment projects that do not involve condemnation.

According to the press release:

The legislation would require municipalities to advise property owners within a proposed redevelopment area of the municipality’s intent to use or not use eminent domain to facilitate a redevelopment plan at the outset of the redevelopment study as well as to provide specific notice of such designation. Unless a municipality notifies owners of property located in a proposed redevelopment area that the designation will allow the municipality to take property located in the area by eminent domain – or that the proposed area is a Condemnation Redevelopment Area – the “Local Redevelopment Housing Law” would not authorize the use of eminent domain.

The bill would also authorize municipalities that intend to implement redevelopment initiatives without using eminent domain to do so but to still take advantage of the other tools available under the LRHL that encourage and facilitate economic development activities, create job opportunities, increase commerce, and enhance ratable values within their communities during these difficult economic times. This process would require designating the proposed area as a Non-Condemnation Redevelopment Area.

Having made it out of the Senate Community and Urban Affairs Committee, the bill now heads to the Senate Budget and Appropriations Committee. Stay tuned for more updates.

Condemning Authority Not Required To Negotiate With Mortgagee

by:  Peter J. Gallagher

 In a recent opinion, Borough of Merchantville v. Malik & Son, LLC, the New Jersey Appellate Division held that a condemning municipality was not required to negotiate with a party that had obtained a final judgment of foreclosure on the property that the municipality was looking to condemn.  Under New Jersey law, before condemning real property, a condemning authority must, among other things, engage in bona fide pre-litigation negotiations with the party that "owns title of record to the property."  Prior case law had made clear that this limitation meant that a condemning authority was not required to negotiate with a leaseholder or some other party that might have an "interest" in the property, but was instead required to negotiate only with the record title owner. 

In Malik & Son, a lienholder argued that, by virtue of it having obtained final judgment of foreclosure on the property, it stepped into the shoes of the record title holder, and the municipality should have been negotiating with it instead of the record title holder.  Specifically, the lienholder argued that it was not like a leasholder or even a "mere mortgage holder," but was instead the true "stakeholder and only party with a genuine interest in negotiating the sale of the property" because it had possession of the property, the right to sell it, a final judgment of foreclosure, and had scheduled a sheriff's sale by the date of the taking .  Relying on the plain language of the relevant statutes, the trial court rejected this argument, and the Appllate Division affirmed its decision.  The Appellate Division further explained that the municipality did not preclude the record title holder from discussing the negotiations with the lien holder, and that the lienholder — as a "condemnee with a compensable interest," albeit not the record title holder — could participate in subsequent valuation and allocation eminent domain proceedings.