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NJ Appellate Court Issues Guidance on Sufficient Proofs Under Revised “Fair Market Value” Standard Banner Image

NJ Appellate Court Issues Guidance on Sufficient Proofs Under Revised “Fair Market Value” Standard

Month: April 2023

NJ Appellate Court Issues Guidance on Sufficient Proofs Under Revised “Fair Market Value” Standard

Posted on by Christie Bowness

On April 21, 2023, the New Jersey Appellate Division (“the Court”) issued an important and uniquely topical decision in the matter of NR Deed, LLC v. Rabago, No. A-2315-21, LEXIS 603 (App. Div. Apr. 21, 2023), providing some of the first recorded guidance on the types of evidentiary proofs that will be considered sufficient to demonstrate “fair market value” under the revised terms of N.J.S.A. 54:5-89.1, as well as direction regarding the extent to which internet property valuation websites like Zillow.com will be given consideration.

Background

In 2011, Henry and Jennifer Rabago (“Defendants”) purchased a home in Sayreville, New Jersey (“the Property”).  Over the ensuing years of ownership, Defendants became delinquent on their property taxes and utilities, leading to the Sayreville Tax Collector, in 2018, selling a tax sale certificate (“the Certificate”) to GSRAN-Z, LLC (“the Certificate Purchaser”) in exchange for its payment of Defendants’ unpaid balance.  Thereafter, the Certificate Purchaser continued paying all taxes and utilities owed on the Property, causing the balance of the Property’s tax lien to swell to over $60,000 by August 2021, at which time the Certificate Purchaser filed a foreclosure action against Defendants.  In early December 2021, the Certificate Purchaser moved for the entry of final judgment in the foreclosure action and assigned its interests in the Certificate to Plaintiff NR Deed, LLC (“NR”).

On December 19, 2021, Defendants contracted to sell the Property to MAO Properties, LLC (“MAO”), with the sale contract providing that Defendants would be permitted to continue residing at the Property for six months post-closing and that MAO would pay Defendants’ litigation and closing expenses.  MAO then moved to intervene in the foreclosure action and redeem the Certificate, with both MAO and Defendants submitting certifications to the foreclosure court in support of the application.  Therein, they attested that the $150,000 price paid for the Property constituted fair market value because the Property was dilapidated and in need of substantial repair, and that the deal provided Defendants with the best opportunity for receiving maximum value for the Property and afforded them an opportunity to satisfy their debts and start over anew.  NR opposed and contended that the price paid was not fair market value, relying on a Zillow.com “Zestimate” valuing the Property at nearly $400,000.

The foreclosure ruling

The foreclosure court heard oral argument on the dispute, with NR acknowledging during the proceedings that its price estimate was not a formal appraisal and was based only on the “outside” of the Property, as interior access was never granted.  The foreclosure court ultimately ruled in MAO’s favor and entered an order granting MAO’s request to redeem the Certificate.  In arriving at this outcome the foreclosure court credited Defendants’ own certifications and the fact they had personally certified that the Property was “in substantial need of repair.”  Regarding Zillow.com and the “Zestimate,” the foreclosure court noted that:

Market estimates such as those provided by Zillow generally assume a property does not require substantial repairs.  Here, however, the Property is in need of substantial repairs and so the Zillow estimate cannot be said to be an accurate reflection of what a buyer with reasonable knowledge of the relevant facts would be willing to pay.

The foreclosure court thus held that the $150,000 value did in-fact constitute “fair market value for the Property given its stated[] current conditions,” and that permitting MAO’s redemption would best satisfy the interests of all parties, as it would allow NR to be made whole – as NR would receive the full value of the tax lien – and would also allow Defendants to remain in possession of their home for six months while planning how to start over, thus “breathing life into and supporting [the] old equitable maxim, ‘equity abhors forfeiture.’”

The appeal

NR appealed this outcome, arguing that the foreclosure court erred in accepting Defendants’ and MAO’s representations that fair market value had been paid.  The Court disagreed, citing to the recently issued opinion of Green Knight Cap., LLC v. Calderon, 252 N.J. 265 (2022) and observing that this decision and recent amendments to N.J.S.A. 54:5-89.1 represented a “shift in [] jurisprudence” that now favors investors and recognizes a “less exalted view of tax sale certificate purchasers.”  As to the specific proofs offered during the foreclosure proceedings, the Court held as follows:

Because the record reflects: [NR] admitted it was denied access to the interior of [D]efendants’ home; its Zillow Zestimate and tax assessment figures did not account for the poor condition of the Property nor the significant cost to renovate it; and no other competent evidence was presented to the judge to refute the fair market value figure presented by MAO, we discern no basis to second-guess the judge’s finding that $150,000 was the fair market value of the Property.

Based on the above quote, combined with the fact that a “judge is not precluded from considering reliable evidence of the value of real property absent expert proofs,” the Court affirmed the foreclosure court’s decision.

Takeaways

This opinion offers numerous important takeaways, chief among them the fact that expert testimony is not needed to demonstrate fair market value and that party certifications alone can be used to satisfy the standard.  However, based on the language of the decision, it does appear that had one of the parties offered expert testimony in support of their position, party testimony alone would have been insufficient to rebut the expert.  It also makes clear that online market estimates such as those commonly seen on Zillow.com, Realtor.com, and other various websites can be considered by the court in a limited capacity, despite the ambiguous nature of their valuation methods and accuracy.  Recognizing that the foreclosure court is a branch of the New Jersey Chancery Division, the opinion also interestingly touches upon the idea that some measure of equitable consideration and balancing is inherent within every foreclosure decision.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, James Mazewski at jmazewski@riker.com, Kevin Hakansson at khakansson@riker.com or Kori Pruett at kpruett@riker.com.

NJDEP Adopts Environmental Justice Regulations

Posted on by Christie Bowness

The New Jersey Department of Environmental Protection (“NJDEP” or the “Department”) adopted its long discussed Environmental Justice Rules (“EJ Rules”) on April 17, 2023. The Department has touted these rules as the first of their kind in any state.

Eight types of facilities are subject to the EJ Rules: 1) major sources of air pollution; 2) resource recovery facilities or incinerators; 3) sludge processing facilities, combustors, or incinerators; 4) sewage treatment plants with a permitted flow of more than 50 million gallons per day; 5) transfer stations or other solid waste facilities, or recycling facilities intended to receive at least 100 tons of recyclable material per day; 6) scrap metal facilities; 7) landfills; 8) certain medical waste incinerators.

A permit applicant will be subject to the EJ Rules when it submits an application to NJDEP for a “new or expanded facility, or the renewal of an existing major source permit, for a facility located or proposed to be located, in whole or in part, in an overburdened community, or to Solid Waste Management Plan actions.” A list of overburdened communities (“OBCs”) has been developed by the Department and is available on its website.

To comply with the EJ Rules, applicants must prepare an environmental justice impact statement (“EJIS”). The EJIS will include a description of the municipal and neighborhood setting, the facility’s current and proposed operations including an explanation of “the purpose of the permit application” and “how the project serves the needs of the individuals of the [OBC],” a discussion of the pollution and environmental control measures that will be used, and “other information relevant to the potential for the facility to contribute to environmental and public health stressors in the [OBC].” Additionally, an EJIS must include a public participation plan. Finally, for new facilities, the EJIS must discuss how the facility will “serve a compelling public interest in the [OBC].”

If the Department determines a facility is located or proposed to be located in an OBC that is “subject to adverse cumulative stressors or the facility cannot demonstrate that it will avoid a disproportionate impact,” the application must provide supplemental information. This will include information related to traditional environmental concerns such as wildlife, flooding, water quality, air quality, and outdoor recreation.

Once an EJIS is complete and all required supplemental information provided, the Department will issue authorization for an applicant to proceed to the public participation process. As part of this process, the applicant will need to provide the required public notice, a public hearing, and a time for written comment submissions. Following the completion of the public participation process, the Department will decide whether the facility will avoid a disproportionate impact and whether additional conditions regarding environmental justice will be incorporated into any subsequently issued NJDEP permits.

For new facilities, the Department will deny an application if the applicant cannot avoid a disproportionate impact, unless “that proposed facility will serve a compelling public interest in the overburdened community.” NJDEP will apply a demanding standard to demonstrate that a facility serves “a compelling public interest.”  That is, such a facility is one that “primarily serves an essential environmental, health or safety need of the individuals in an overburdened community,” is necessary to do so, and for which there are no reasonably available alternatives. Per the Department, this definition “will facilitate projects … such as schools or hospitals.” Economic benefits are not considered in this analysis.

For facility expansions and for major source air permit renewals, in contrast, the Department may not outright deny an application under the EJ Rules. Instead, the Department may impose conditions on the permit “as necessary to avoid or minimize contributions to adverse environmental and public health stressors.”

Effectively, the EJ Rules “will require certain facilities seeking certain permits in [OBCs] to prepare an [EJIS] and conduct a public hearing to ensure meaningful public participation in the permitting process.” The goal of this public participation and process is to “avoid increases to environmental and public health stressors” in OBCs, but it also will lead to greater regulatory and, in some instances, litigation hurdles for the affected facilities and operators.

For more information, please contact the author Jordan Asch at jasch@riker.com or any attorney in our Environmental Practice Group.

NJ Appeals Court Holds Tax Certificate’s Interest Rate Does Not Control When Tax Sale Is Set Aside

Posted on by Christie Bowness

In the recent matter of Mo Geo LLC v. City of New Brunswick, No. A-2019-21, LEXIS 436 (App. Div. Mar. 23, 2023), the New Jersey Appellate Division (“the Court”) issued a March 23, 2023 opinion addressing the proper method of assessing tax sale certificates and, interestingly, holding that where a tax sale certificate expressly provides that it carries a specific redemption interest rate, in the event the tax sale is set aside, this rate will not control and the purchaser will instead only be entitled to the potentially much lower post-judgment interest rate provided for in Rule 4:42-11(a).

Background

This matter begins on December 15, 2015, on which date Plaintiff Mo Geo, LLC (“Plaintiff”) purchased two tax sale certificates (“the Certificates”) for unpaid sewer and water charges that had been assessed against the homeowner’s association of a condominium building owned by Defendant the City of New Brunswick (“New Brunswick”).  The Certificates stated that they carried a redemption interest rate of eighteen percent and were formally recorded on January 28, 2016.

In July 2020, Plaintiff notified New Brunswick that the Certificates were invalid, contending that they should have been assessed against the individual owners of the specific condominium units that had incurred the unpaid charges, instead of against the homeowner’s association in an aggregate amount.  In September 2020 Plaintiff filed suit, seeking to recover the purchase price it had paid for the Certificates, the value of all taxes and fees paid, interest at eighteen percent per annum as provided for within the Certificates, attorney’s fees, and court costs.

Upon the close of discovery, Plaintiff and New Brunswick filed dueling summary judgment motions against one another.  Plaintiff ultimately prevailed, with the trial court holding that the Certificates were invalid, rejecting laches and equitable estoppel claims raised by New Brunswick, and explaining that Plaintiff “should not suffer the wrong of purchasing . . . an invalid lien, [] that was sold by [New Brunswick] as a valid lien[,] without any remedy.”  The trial court thereafter awarded Plaintiff its sought-after damages, calculated at the requested eighteen percent interest rate contained in the Certificates.

New Brunswick appealed, electing not to challenge the holding that the Certificates were defective, and instead asserting only that the trial court had erred by: (1) failing to apply the doctrines of laches and estoppel; and (2) by granting interest at eighteen percent rather than using the adaptable formula for post-judgment interest rates codified in Rule 4:42-11(a), which calls for the interest rate to be calculated as “the average rate of return, to the nearest whole or one-half percent, for the corresponding preceding fiscal year . . . of the State of New Jersey Cash Management Fund.”

In ruling upon New Brunswick’s first claim, the Court began by confirming that the Certificates had indeed been invalidly assessed, as N.J.S.A. 46:8B-19 of the New Jersey Condominium Act and its applying case law clearly mandated that these charges “should have been allocated to the respective unit owners rather than asserted in an aggregate amount against the [Homeowner’s] Association.”  The invalidity of the assessment in turn served to void both the subsequent tax sale and the resulting Certificates, necessitating that Plaintiff receive a “refund of the purchase price.”  New Brunswick’s equitable claims were incapable of altering this outcome, as Plaintiff’s suit had been filed within the governing six-year statute of limitations, and thus, in reliance upon the guidance issued by our Supreme Court in Fox v. Millman, 210 N.J. 401, 412 (2012), the Court determined that it was inappropriate to “utilize an equitable remedy to foreclose a claim otherwise governed by a fixed statute of limitations and otherwise filed in compliance” with that deadline.

As to New Brunswick’s second claim, the Court observed that where a tax sale is set aside, the controlling statute, N.J.S.A. 54:5-43, provides that the municipality is to refund the purchaser for their costs along with an award of “lawful interest.”  While the trial court awarded Plaintiff “lawful interest” using the eighteen percent rate contained in the language of the Certificates, the Court held this outcome was erroneous, and that the “lawful interest” rate for “post-judgment interest” should have been calculated using the formula contained in Rule 4:42-11(a).  Accordingly, the matter was remanded back to the trial court “to calculate and award interest” pursuant to this holding.

Takeaways

This opinion makes clear that any would-be tax certificate purchaser should take care to independently confirm that the assessments they are purchasing were put forth against the proper parties, as in the event the tax sale is set aside, the purchaser could, through no fault of their own, be subject to a significantly lower interest rate than they originally bargained for.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, James Mazewski at jmazewski@riker.com, Kevin Hakansson at khakansson@riker.com or Kori Pruett at kpruett@riker.com.

EPA Proposes Stringent New Standards for PFAS in Drinking Water

Posted on by Christie Bowness

The U.S. Environmental Protection Agency ("EPA") proposed the first national drinking water standards for per- and polyfluoroalkyl substances ("PFAS"), sometimes called “forever chemicals,” on March 14, 2023.

The proposed rule would establish maximum contaminant levels ("MCLs") for six PFAS known to be found in drinking water, including perfluorooctanoic acid ("PFOA"), perfluorooctane sulfonic acid ("PFOS"), perfluorononanoic acid ("PFNA"), hexafluoropropylene oxide dimer acid ("HFPO-DA", commonly known as GenX chemicals), perfluorohexane sulfonic acid ("PFHxS"), and perfluorobutane sulfonic acid ("PFBS").  Under the new rule, public water systems would be required to monitor for these chemicals, alert the public regarding PFAS levels, and take measures to decrease them if they surpass the approved standards.

EPA anticipates that the proposed rule will be finalized by the end of 2023.

The Proposed Rule’s Impact on New Jersey

If finalized as written, the new rule will have significant implications for public water systems across the nation, and New Jersey is no exception. Under New Jersey law, National Primary Drinking Water Regulations like the newly proposed PFAS standards are automatically incorporated into the State’s Safe Drinking Water Act Regulations. N.J.A.C. 7:10-5.1.  Typically, the federal drinking water standards establish a floor upon which New Jersey sometimes implements additional restrictions. But in this case, EPA’s proposed rule is substantially stricter than New Jersey’s current PFAS MCLs, which the New Jersey Department of Environmental Protection ("NJDEP") promulgated in 2020 (for PFOA and PFOS) and 2018 (for PFNA).

For example, New Jersey currently has enforceable MCLs for just three PFAS: PFOA, PFOS, and PFNA. The new rule would add to that list PFHxS, PFBS, and the GenX Chemicals. Moreover, the EPA rule sets the MCL for PFOA and PFOS at 4 parts per trillion (ppt), several times lower than New Jersey’s current MCL of 14 ppt for PFOA and 13 ppt for PFOS and PFNA. The four other PFAS will be regulated under a mixture standard under EPA’s proposal, whereby a hazard index will be used to determine if the combined levels of any of those PFAS in a given water system pose a potential risk.

In addition, the automatic incorporation into New Jersey’s Safe Drinking Water Act regulations of EPA’s proposed MCLs also will have the effect of changing New Jersey’s groundwater remediation standards for PFAS.  The Department’s regulations require that “the health-based level used to establish [an] MCL shall be the specific groundwater quality criterion for the constituent.”  N.J.A.C. 7:9C-1.7(c)(3)(i).  In turn, these groundwater quality standards are the groundwater remediation standards for Class II groundwater, which is the groundwater classification for most of the state.  N.J.A.C. 7:26D-2.2(a)(1).

Claims for PFAS Treatment Costs in New Jersey

New Jersey’s idiosyncratic statutory scheme for recovery of environmental cleanup costs under the Spill Act may provide unique opportunities for recovering treatment or remediation costs that the strict MCLs for PFAS under EPA’s proposed rule could require.  NJDEP has designated PFOA, PFOS, and PFNA, but not the other PFAS compounds covered under EPA’s proposed rule, as “hazardous substances” under the Spill Act.  Costs to address drinking water contaminated with hazardous substances are considered “cleanup and removal costs” that are recoverable under the Spill Act's strict liability scheme.  Finally, and most significantly, recent decisions of New Jersey courts have left open the possibility that parties who manufactured and sold hazardous substances, including PFAS, could be strictly liable under the Spill Act even if those parties are not themselves the discharger.  We have previously written on our blog here and here about cases implicating this novel and evolving theory of Spill Act liability.  If non-discharging manufacturers of PFAS are found to be strictly liable under the Spill Act, it will be simpler for parties incurring costs to treat PFAS in drinking water or to comply with increasingly stringent PFAS remediation standards to recover some of these costs.  This theory of Spill Act liability would relieve potential plaintiffs of the burden to pinpoint the source of a PFAS discharge, which often could be difficult to prove given the ubiquitous presence of PFAS in groundwater in New Jersey.

At the federal level, EPA has proposed a rule identifying PFOS and PFOA as hazardous substances, which could open the door to CERCLA claims for the costs of treatment of drinking water to meet the proposed stringent MCLs.  However, unlike under New Jersey’s Spill Act, CERCLA precedents are clear that parties who are merely selling a useful product, rather than disposing of a waste, are not liable.  Thus, parties asserting CERCLA claims for PFOS or PFOA treatment costs will have to identify the particular source or sources of contamination, a hurdle that may prove difficult or impossible to surmount in certain circumstances.

If adopted, EPA’s proposed rule establishing PFAS MCLs may impose significant costs on water purveyors across the country and in New Jersey, where PFAS frequently have been detected in groundwater at levels exceeding NJDEP’s remediation standards.  Water purveyors who may incur such costs, and parties incurring costs to remediate PFAS in groundwater, should keep abreast of ongoing developments in Spill Act litigation, which may provide unique opportunities for recovering these costs from other parties.

For more information, please contact any attorney in our environmental practice group.  Michael Antzoulis, a law clerk at Riker Danzig and student at Seton Hall Law School, authored this article.

NY Holds Short-Term Rentals Excluded by “Single Family Residential” Use Restriction

Posted on by Christie Bowness

On March 7, 2023, the New York Supreme Court (“the Court”) issued its opinion in West Mountain Assets LLC v. Dobkowski, N.Y. Slip Op. 23064 (N.Y. Sup. Ct. 2023), holding that the use of a property for short-term rentals violated a deed restriction limiting use to “single family residential purposes” only, with this opinion also touching upon the issue of co-tenant adverse possession.

Background

The background of this matter involved Plaintiff West Mountain Assets LLC (“Plaintiff”) and Defendants James and Jennifer Dobkowski (“Defendants”), each of whom owned neighboring parcels of land in a subdivision of Warren County, New York, containing single-family residences.  The parties’ deeds to these parcels included restrictions requiring that the properties would: (1) only be used for single family residential purposes; (2) not be used for commercial activity; and (3) not be used for any “noxious, dangerous, offensive or unduly noisy activity of any nature” (“nuisance behavior”).  These two parcels also abutted a third parcel of land containing a road servicing both properties (“the road parcel”), which Plaintiff and Defendants owned as co-tenants.

Subsequent to Plaintiff’s purchase, it began using its parcel as a short-term rental property, renting to tenants for varying lengths of time spanning from a weekend up to multiple weeks.  Plaintiff later brought suit against Defendants for their alleged interference with its tenants' free use of its property, with Defendants counterclaiming for a declaration that Plaintiff’s use of the property for short-term rentals and the alleged nuisance behavior of its tenants violated the deed restrictions.  Defendants also raised an additional counterclaim for adverse possession of a portion of the road parcel.

Defendants ultimately moved for summary judgment on their two counterclaims, with the Court first addressing the claim that Plaintiff’s rentals violated the deed restrictions, focusing on Plaintiff’s “right to rent on ongoing, short-term, repetitive bases to transient, vacationing tenants.”  In doing so, the Court examined the historical construction given to the phrase “single family residential purposes” when such language appeared in a deed or restriction, relying on the matter of White Plains v. Ferraioli, 34 N.Y.2d 300, 304-06 (1974), in which it was held that “a single-family use [was] one that ‘bears the generic character of a family unit as a relatively permanent household.’”  Applying this rationale, the Court held that the so-called “transient living” of the rental tenants fell “outside the scope of a single-family residential use,” and thus granted Defendants summary judgment on their first counterclaim.

Defendants remaining adverse possession counterclaim met a less favorable outcome, with the Court holding that because the road parcel was held by the parties as co-tenants, any use of the parcel by either party was presumed to benefit the other, as the law presumes that one co-tenants’ possession benefits all other co-tenants.  Due to this, Defendants’ use could only be considered “adverse” if they had been expressly or impliedly “ousted” from use of the property, which had never occurred.  Thus, this claim was dismissed.

Takeaways

As the short-term vacation rental economy grows, property owners seeking to venture into the market should pay close attention to any restrictions that run with their land, as even a family unit vacationing in a single-family home could potentially be outside the scope of permitted uses.

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