On appeal from Superior Court of New Jersey, Chancery Division, Mercer County.
Pressler, Muir, Jr. and Skillman. The opinion of the court was delivered by Skillman, J.A.D.
[225 NJSuper Page 303] Plaintiff State of New Jersey determined to acquire a small parcel of property in the City of Trenton owned by defendants Thydyllo and Betsy Myndyllo. This property was subject to tax liens held by defendant City of Trenton of approximately
$4,000, a $5,500 mortgage held by defendant Lily K. Yin, and a judgment of $11,910 which had been executed on the property by defendant Louise Inniss.
The State entered into a contract with the Myndyllos to purchase the property for $5,000. It then filed this action for specific performance against both the Myndyllos and the lienholders. The complaint sought to compel conveyance of title by the Myndyllos and also an order that "the conveyance be free and clear of all liens, and the sum of $5,000 attach to the various liens of the other defendants."
The trial court granted the State's motion for summary judgment and entered an order directing the Myndyllos to convey title and providing that the conveyance would be free and clear of all liens. In a subsequent order, the court directed that $4,339.05 of proceeds of the sale be disbursed to the City of Trenton.*fn1 Defendant Inniss appeals.
We conclude that the State lacks statutory authority to extinguish liens on real property acquired by voluntary conveyance, unless the lienholders either receive payment or release their liens. Therefore, we reverse.
The Eminent Domain Act of 1971, N.J.S.A. 20:3-1 et seq., authorizes the State to acquire property by condemnation whenever it ". . . cannot acquire title thereto . . . by agreement with a prospective condemnee, whether by reason of disagreement concerning the compensation to be paid or for any other good cause." N.J.S.A. 20:3-6. When the State condemns property, it takes "title in fee simple, free and discharged of all right, title, interest and liens of all condemnees." N.J.S.A. 20:3-20.
The State characterizes its contract to purchase the Myndyllos' property as a "voluntary agreement in lieu of condemnation proceedings," and it contends that the judgment
requiring specific performance of that contract extinguished all liens in the same manner as would a judgment in condemnation. We find no authority for this view in the Eminent Domain Act. The Act expresses a strong preference for voluntary acquisition of property which is required for public purposes. See Morris County v. Weiner, 222 N.J. Super. 560 (App.Div.1988); Rockaway v. Donofrio, 186 N.J. Super. 344 (App.Div.1982). However, it contains no special provisions for the discharge of liens on property which governmental agencies acquire by voluntary conveyance rather than by condemnation. Thus, N.J.S.A. 20:3-20 provides for the discharge of liens only with respect to "title to property condemned and acquired by the condemnor hereunder." Therefore, where the State acquires title to property by voluntary conveyance, any liens must be discharged by the payment of the lienholders from the proceeds of the sale or by agreement with the lienholders. Where any liens on property required for public purposes cannot be discharged in this manner, a governmental agency must bring condemnation proceedings in order to obtain clear title.
The circumstances of the present case illustrate why a contract of sale between a governmental agency and the owner of property, followed by a judgment for specific performance of that contract, cannot extinguish the interests of lienholders in the same manner as a judgment in condemnation. The Myndyllos agreed to convey their interest in the subject property to the State upon the deposit of $5,000 into court. Ms. Inniss alleges that the property may be worth substantially more than $5,000, but that the Myndyllos had no incentive to bargain for more or to insist upon the institution of condemnation proceedings because the value of the liens on their property exceeded its worth and the other ...