Condemning authorities have no statutory duty to negotiate with a property’s mortgagee, even one that has obtained a final judgment of foreclosure, a state appeals court ruled on Tuesday.
The three-judge panel, in Merchantville v. Malik & Son, A-3745-11, held that a trial judge correctly denied a mortgage assignee’s attempt to intervene and negotiate a higher compensation amount after the original owner had refused the initial offer.
The assignee, LB-RPR REO Holdings of Texas, claimed it had "stepped into the shoes" of the property owner, Malik & Son, and accused the borough of Merchantville of bad faith in refusing to negotiate.
Malik & Son own a 54-unit apartment complex in Merchantville that the borough is seeking to condemn for redevelopment purposes. The complex, a century old, is falling into disrepair and the borough, on Nov. 11, 2011, made Malik & Son an offer of $270,000. Malik & Son rejected the offer later that month, saying that amount was less than what was owed. The borough filed its condemnation complaint in Superior Court in December 2011.
When Malik & Son rejected the borough’s offer, LB sought to dismiss the complaint as the mortgage assignee and produced a proposed sale agreement in which another company, NJ Norse Holdings Inc. of Hackensack, had proposed buying the property for $1.85 million some years earlier. LB also showed that, in 2011, another developer had offered $1.25 million for the property.
Lastly, LB said it had obtained a final judgment of foreclosure, which meant it was the controlling party.
Camden County Superior Court Judge F.J. Fernandez-Vina rejected LB’s motion, saying the company had no standing under the Eminent Domain Act, N.J.S.A. 20:3-1 to -50.
Appellate Division Judges Francine Axelrad, Paulette Sapp-Peterson and William Nugent agreed, finding the statute requires only that a condemning authority engage in good-faith negotiations with the "prospective condemnee holding the title of record to the property being condemned."
Axelrad, writing for the panel, cited two Supreme Court decisions: Atlantic City v. Cynwyd Investments, 148 N.J. 55 (1997), which rejected arguments that condemning authorities also should negotiate with leaseholders, and Kearny v. Discount City of Old Bridge, 205 N.J. 386 (2011), which held that where a fee simple is being condemned, negotiations will take place with the fee owner alone.
LB argued it was the true stakeholder and the "only party with a genuine interest in negotiating the sale of the property."
"We are not convinced that this status translated into a legal requirement mandating the Borough to negotiate with LB," Axelrad said. "Malik, as title holder, had the requisite motivation to ensure that it received just compensation for the property.
"That is the logic behind the Legislature’s wisdom of limiting the negotiation process to record owners and protecting the interests of ‘condemnees with a compensable interest’ by allowing them to participate in subsequent valuation and allocation eminent domain proceedings," she said, quoting Cynwyd Investments.
The panel also rejected arguments that Malik’s decision to reject the borough’s offer and its invitation to further negotiations amounted to a formal refusal that allowed the borough to file its condemnation complaint.
Malik, Axelrad said, made no counter offer and did not mention the two previous offers to buy the property.
"Just as the Borough was statutorily obligated to negotiate in good faith, the property owner was obligated to provide a meaningful response to warrant further dialogue," she said.
LB retained Stuart Lederman, of Morristown’s Riker, Danzig, Scherer, Hyland & Perretti, while Cherry Hill solo Timothy Higgins represented Merchantville. Neither returned telephone calls seeking comment.