Borough of Merchantville v. Malik & Son, LLC

Malik & Son, LLC owned property in the Borough of Merchantville. The Property contained a fifty-four unit apartment building and had been designated by the Borough as an area in need of redevelopment. Malik assumed a mortgage loan issued by LB-RPR REO Holdings, LLC’s (LB) predecessor, and defaulted on the loan. LB’s predecessor in interest filed a complaint to foreclose the mortgage, and Malik did not file an answer. In early 2011, the court entered a final judgment of foreclosure. LB’s predecessor in interest transferred all its rights and interest in the Property to LB the next day. Once it acquired the loan, LB had a receiver appointed for the Property and made substantial repairs to the building. In an effort to protect its interest in the Property, LB sought, and the court entered, an order that directed that Malik could not sell the Property without the express approval of the sale price by LB. Throughout 2010 and 2011, the Borough pursued a plan to redevelop the Property. The Borough designated Citadel Wellwood, LLC (Citadel) as the redeveloper of the Property, and adopted the redevelopment and rehabilitation plan for the Property. Months before Citadel was designated as the redeveloper of the Property, Citadel entered a contract to purchase it for $1,250,000. Richard DePetro, the principal of Citadel, cancelled the contract after seeking a $200,000 reduction in the purchase price due to the deteriorated condition of the building. Malik rejected the offer, citing the amount due on the LB mortgage. Prior to cancelling the contract, Citadel contacted LB and offered to purchase the Property for $1,250,000 if LB agreed to a short sale to permit satisfaction of other liens. In the course of those discussions, DePetro mentioned to LB’s representative that the Borough would probably condemn the Property. In June 2011, in response to an inquiry from an LB representative, the Borough denied any intention to condemn the Property. However, once the Borough adopted the redevelopment plan on September 26, 2011, the Borough engaged an appraiser to ascertain the fair market value of the Property. The appraiser opined that as of August 24, 2011, its fair market value was $0. He calculated that value because the cost to renovate the Property far exceeded its market value following renovation and rehabilitation. The appraiser also assigned a fair market value of $270,000 without renovations. In a letter dated November 11, 2011, the Borough offered Malik $270,000 for the Property. Malik declined the Borough's offer. That same date, LB’s attorney contacted the Borough, expressing its surprise that the Borough intended to condemn the Property and noted that the Borough’s offer was far less than the price offered by Citadel in June 2011. LB’s attorney informed the Borough that it had obtained a final judgment of foreclosure and that the Property was scheduled to be sold at Sheriff’s Sale. Noting that it would soon own the Property, LB expressed its desire to meet with the Borough to discuss reasonable compensation for the Property. In this appeal, the issue this case presented to the Supreme Court was whether N.J.S.A. 20:3-6 required a condemning authority to engage in bona fide negotiations with a mortgage holder that has obtained a final judgment of foreclosure for the property sought to be condemned. In this case, the condemning authority initiated eminent domain proceedings after the property owner rejected its offer to acquire the property, just days before the holder of the foreclosure judgment expected the property to be sold at a Sheriff’s Sale. The judgment holder contended it was the real party in interest, and that the condemning authority had an obligation to negotiate with it rather than the property owner prior to initiating condemnation proceedings. The trial court concluded that the condemning authority had properly submitted the offer to the owner of record, and the subsequent rejection of the offer satisfied the statutory requirement of bona fide negotiations prior to the exercise of eminent domain authority. The trial court also determined that the condemning authority had no obligation to advise the foreclosure judgment holder of its intention to condemn or to engage in bona fide negotiations with it. In a reported decision, the Appellate Division affirmed. The Supreme Court agreed and affirmed the judgment of the Appellate Division. View "Borough of Merchantville v. Malik & Son, LLC" on Justia Law