NJ Justices Mull Lien Holder Rights In Eminent Domain Cases
By Martin Bricketto
Law360, New York (June 28, 2013, 8:04 PM ET) -- The New Jersey Supreme Court on Friday agreed to answer whether a municipality flexing its powers under the state's eminent domain law must negotiate with a lien holder that has secured a final foreclosure judgment on a targeted property.
LB-RPR REO Holdings LLC won certification of its petition arguing that Merchantville, N.J., had a duty to engage in good faith negotiations with the national developer of distressed properties over the condemnation of a 54-unit apartment building. LB held the mortgage on the property, had obtained a foreclosure order and was set to acquire the parcel through a sheriff's sale.
The state's Appellate Division in February found that LB wasn't the title owner when Merchantville made an offer and that the owner's rejection of that offer gave the borough the go-ahead to initiate its eminent domain proceeding.
“Both property owners and condemnors want to know the rules of the road, and I think this is an area where, in a broad sense, it's important to clarify the rules of the road. Both condemnors and condemnees, particularly condemnees when you're taking property, need to be treated fairly,” said Stuart M. Lederman, an attorney for the company.
Bona fide negotiations are critical to ensuring that a condemnee “receives and keeps” just compensation as part of a taking, and the state's Eminent Domain Act anticipates that a property's owner of record is the most suited to address a condemnation, LB said in its March brief to the high court. However, the owner isn't qualified when it has been completely disenfranchised by something like a foreclosure judgment, according to LB.
“Where it knows this to be the case, to preserve the constitutional right to 'receive and keep' just compensation, a condemnor must be required to negotiate with the real party in interest,” the brief said. “Anything less is futile and results in a loss of the just compensation to which all condemnees are entitled.”
An attorney for Merchantville did not return a request for comment.
The borough instituted eminent domain litigation after the property owner, Malik & Son LLC, refused the borough's purchase offer. Merchantville marked the property as an area in need of redevelopment and offered Malik & Son $270,000 based on an appraisal.
Malik & Son declined the offer, saying the amount was far less than the property's lender was owed but told the borough it was willing to consider a “more reasonable” offer that would satisfy all liens and encumbrances on the property.
The same day, LB's attorney emailed Merchantville's counsel and said LB had obtained a foreclosure order and was going to become the property owner after a sheriff sale, and said it was the real party in interest, meaning Merchantville should be negotiating with it, and not Malik & Son.
When Merchantville launched litigation to recover the property after Malik & Son's refusal, LB sought to dismiss the complaint, but the lower court found the state eminent domain law didn't require the borough to tell LB it was going to condemn the property or negotiate with LB.
On appeal, LB reasserted the arguments it made in the trial court — that Merchantville's negotiations with Malik & Son weren't made in good faith and that the borough had a duty to engage in good-faith negotiations with LB.
But the appellate court said New Jersey's eminent domain law requires a condemnor only to extend an offer to the title owner and cited a state Supreme Court decision, City of Atlantic City v. Cynwyd Investments, in which the court said such a qualification “avoids the difficult requirement of negotiating with each condemnee having an interest in the property."
LB had argued that although it wasn't recorded as the owner of record when Merchantville made the offer, it was the true "stakeholder and only party with a genuine interest in negotiating the sale of the property,” according to the decision.
The appellate court said it wasn't convinced LB's status meant Merchantville was legally required to negotiate with LB because the lien holder wasn't the owner of record when the borough sought to purchase the property, and the borough had a responsibility to negotiate only with the owner under state law.
LB-RPR is represented by Stuart M. Lederman and Rudy S. Randazzo of Riker Danzig Scherer Hyland & Perretti LLP.
Merchantville is represented by Timothy J. Higgins.
The case is Borough of Merchantville v. Malik & Son LLC et al., case No. A-66-12 before the New Jersey Supreme Court.
