Borough of Merchantville v. Malik & Son, L.L.C., A-3745-11T4; Appellate Division; opinion by Axelrad, P.J.A.D.; decided and approved for publication February 5, 2013. Before Judges Axelrad, Sapp-Peterson and Nugent. On appeal from the Law Division, Camden County, L-5997-11. [Sat below: Judge Fernandez-Vina.] DDS No. 34-2-8926 [25 pp.]

Defendant Malik & Sons, L.L.C., owned property in Merchantville improved with a 54-unit residential apartment complex. In 2010, the borough directed the planning board to investigate whether the property qualified as an area in need of redevelopment under N.J.S.A. 40A:12A-5. When the ensuing study concluded that it did, the governing body directed the board to pursue a redevelopment plan.

A redeveloper was designated and Michael Sapio Jr., MAI, was retained to prepare an appraisal. He opined that the property had an "as is" fair market value of $270,000 and that the cost of renovations exceeded its fair market value. The borough sent a written offer to Malik to purchase the property for $270,000.

Malik’s counsel rejected the offer, deeming it unacceptable because it was far less than Malik owed its lender. He said that Malik would discuss more reasonable compensation sufficient to satisfy all liens and encumbrances on the property.

On the same date, counsel for defendant LB-RPR REO Holdings, L.L.C., the mortgagee’s assignee, advised the borough’s counsel that it had obtained an order of foreclosure and expected that the sheriff’s sale would be ordered shortly, after which it "will become the owner of the property." LB claimed it was "the real party in interest" and the borough should be negotiating with it. The borough did not respond and filed the condemnation lawsuit.

The court found the borough did not have a duty to engage in bona fide negotiations with LB and had satisfied its obligation to engage in such negotiations with Malik as property owner. It permitted the borough to exercise its power of eminent domain and appoint commissioners.

On appeal, LB argues that it essentially stepped into the shoes of the property owner and the borough breached its obligation to "turn square corners" by not including it in the negotiations and in failing to make a bona fide offer prior to filing the condemnation action.

Held: A condemning authority is not obligated under N.J.S.A. 20:3-6 to negotiate with the assignee of a mortgagee that has obtained a final judgment of foreclosure on the property. Moreover, Malik’s express formal notification of its rejection of the condemnor’s offer to purchase its property and vague invitation to discuss "more reasonable compensation in an amount which would satisfy all liens and encumbrances on the property" is inadequate evidence that the property is worth more than the amount offered and constitutes a sufficient rejection of the condemnor’s bona fide one-price offer to permit the condemnor to proceed with litigation.

As to whether the borough had a legal duty to engage in bona fide negotiations with LB, the panel notes that the Eminent Domain Act, 20:3-1 to -50, provides that the condemnor must engage in bona fide negotiations, which shall include a written offer "to the prospective condemnee holding the title of record to the property being condemned." City of Atlantic City v. Cynwyd Investments, 148 N.J. 55 (1997), held that the condemnor was not required to negotiate with a lessee of the property, but only with the title owner.

It is undisputed that Malik was the owner of record of the property during the requisite time period. Thus, the borough had a legal obligation to participate in bona fide negotiations solely with it.

Assuming arguendo that LB has standing to challenge whether the borough engaged in bona fide negotiations with Malik, the panel concludes it did so. Although the act is silent on what is necessary to make a negotiation bona fide, it provides that bona fide negotiations must include a written offer setting forth the property and interest to be acquired, the compensation offered, and a reasonable disclosure of the manner in which the offer was calculated. At a minimum, the condemnor is required to provide the owner with a copy of all appraisal reports relied on in making the offer. The Supreme Court has consistently approved the "one-price" offer method to ensure the condemnee receives "just compensation."

The borough’s letter made an "initial full-price offer" and enclosed copies of the appraisal and engineer’s facility assessment as required by law. Malik clearly understood the nature of the offer. Malik failed to present any evidence that the property was worth more than the amount offered and it did not point out any deficiencies in the appraisal or mention the previous offers it had received for the property. It did not even provide an estimate of the outstanding liens and encumbrances.

The panel says just as the borough was obligated to negotiate in good faith, Malik was obligated to provide a meaningful response to warrant further dialogue. The panel is satisfied that Malik’s formal notification of rejection and lukewarm invitation to discuss more reasonable compensation was a sufficient rejection of the borough’s offer to permit it to file suit.

The panel rejects LB’s challenges to the sufficiency of the appraisal underlying the borough’s offer, finding that the appraisal was sufficient to permit a reasonable average property owner to conduct informed and intelligent negotiations.

The panel concludes that the borough dealt forthrightly and fairly in its negotiations with Malik and satisfied its obligations to turn square corners. It finds no bad faith in the borough’s conduct toward LB, with which it did not have a legal obligation to negotiate. The borough could have chosen to pursue further negotiations before filing suit but it was not legally obligated to do so as it satisfied its burden under 20:3-6.

For appellant — Stuart M. Lederman (Riker, Danzig, Scherer, Hyland & Perretti; Lederman and Rudy S. Randazzo on the brief). For respondents: Borough of Merchantville — Timothy J. Higgins: Crestar Capital — Adam D. Greenberg (Honig & Greenberg).