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1711 Third Avenue v. City of Asbury Park

October 16, 1996


The opinion of the court was delivered by: Hamill

In this local property tax matter plaintiff 1711 Third Avenue, Inc. seeks exemption from tax under N.J.S.A. 54:4-3.6. Plaintiff claims that its property located at 1711 Third Avenue in Asbury Park at Block 24.01, Lot 13 qualifies for exemption as an entity organized exclusively for the moral and mental improvement of men, women and children or as an institution that cares for, treats and studies the "feeble minded, mentally retarded, or idiotic men women, or children . . ." N.J.S.A. 54:4-3.6. The Monmouth County Board of Taxation denied the exemption and affirmed the assessment at $98,000.

Plaintiff produced two witnesses at trial. The first was Pamela McCrory, director of community support programs for Collaborative Support Programs of New Jersey, known as CSP. As explained below, under H.U.D. regulations, CSP is the sponsoring organization for plaintiff. In addition, Ms. McCrory is the director of housing for Butterfly Property Management Company ("Butterfly"), which manages the residential properties sponsored by CSP. Plaintiff's other witness was Kathleen Mahon, a property manager employed by Butterfly. The following facts were developed at trial.

The property in question consists of a house having three bedrooms, kitchen, living and dining rooms, two bathrooms, and a basement. It is a property funded in large part by a program of the United States Department of Housing and Urban Development known as section 811 supportive housing. The purpose of the H.U.D. program is to provide permanent housing and support services to low income adults with mental problems. Under H.U.D. regulations the tenants, now numbering two, must pay 30% of their income as rent to 1711 Third Avenue. Currently, this amounts to rental payments of $110 per month for one tenant and $115 for the other. Neither tenant has a job; their income derives from social security payments. The tenants share the common areas of the house.

Under H.U.D. regulations pertaining to section 811 housing, each supported residence must be separately incorporated as a nonprofit corporation to own the property. Plaintiff 1711 Third Avenue, Inc. fulfills this purpose. Plaintiff has no employees of its own. All services necessary to operate the supportive housing program are provided under H.U.D. regulations by a nonprofit sponsoring organization. In the case of 1711 Third Avenue, the sponsoring organization is CSP.

CSP, through a staff of two social workers, a director of community support programs, and additional back up personnel, provides counseling and other services needed by the residents at the subject property and at 34 other supported residences throughout the State. These services include on-site counseling and off-site counseling. The on-site counseling was irregular during 1995, but currently occurs at least one hour per week per resident. Counseling and assistance include assistance with budgeting, shopping, cooking, cleaning, personal hygiene, attendance at doctors' appointments, monitoring of medical prescriptions, case management, assistance in making or re-establishing ties with the community, assistance in accessing mental health services in the community, and, when necessary, intensive crisis management including extensive on-site visits and twenty-four hour staff availability.

To manage the properties it sponsors, including 1711 Third Avenue, CSP contracts with another nonprofit corporation, Butterfly Property Management. Butterfly drafts leases with tenants, collects rents, and handles repairs and utility bills. 1711 Third Avenue pays Butterfly seven percent of the rents collected from the tenants as a management fee.

Under the H.U.D. section 811 program, H.U.D. provided CSP with the funding to purchase the property. H.U.D. approved CSP as a sponsoring organization, and CSP must account to H.U.D. for the operation of 1711 Third Avenue. This includes certifying to H.U.D. that the tenants are mentally ill.

Asbury Park's counsel objected to the testimony of plaintiff's two witnesses concerning the mental illnesses of the tenants, pointing out that the property manager was not qualified to diagnose mental illness and had only been told by others that the individuals have psychiatric problems. While the director of community support programs has the education and experience sufficient to permit her to diagnose mental illness, her work with CSP does not entail those duties, she herself had not diagnosed the two individuals, and, like the property manager, had simply been advised by the social workers (whom she did not supervise) that the individuals had various psychiatric illnesses. I agree with defendant that plaintiff's witnesses were not competent to testify as to the psychiatric condition of the tenants. On the other hand, there is sufficient other evidence in the record to establish that the residents are mentally ill.

It is undisputed that the property in question is part of H.U.D.'s section 811 supportive housing program. Section 811 refers to a section in the Cranston Gonzalez National Affordable Housing Act, P.L. 101-625, 104 Stat. 4324, 42 U.S.C.A. § 8013. The purpose of section 811 "is to enable persons with disabilities to live with dignity and independence in their communities by expanding the supply of supportive housing . . . ." 42 U.S.C.A. § 8013 (a). A "person with disabilities" is an individual having long term physical, mental, or emotional impairment that impedes the person's ability to live independently and who could benefit from "more suitable housing conditions." 42 U.S.C.A. § 8013(k)(2). Persons with chronic mental illness are considered disabled under the Act. Supportive Housing for Persons with Disabilities, Definitions, 24 C.F.R. § 890.105 Quite clearly, the subject property could not qualify under section 811 unless it housed persons with the described disabilities, and chronic mental illness is a specifically included type of disability.

The fact that one of the tenants is well enough to drive a car, maintain a checking account, and hold a volunteer job does not necessarily lead to the Conclusion that the individual is not mentally ill. As explained by the director of community support programs, the individuals are well enough at times to perform these functions but nevertheless suffer from serious mental illnesses. The design of the section 811 program is to have these individuals live in normal, residential, low cost housing to the extent they are able. Moreover, both the property manager and director of community support programs had fairly frequent contact in person and by telephone with the tenants and, based on their personal observations as lay persons were in a position to at least know if the individuals acted normally. Based on the competent testimony at trial and the applicable law, it is clear that the tenants are mentally ill.

To qualify for tax exemption under N.J.S.A. 54:4-3.6 as a property used for the moral and mental improvement of men, women and children, a property must generally meet four criteria:

1. The entity owning the property must be organized exclusively for the moral and mental improvement of men, women and children;

2. The property must be used in the work of the entity organized for moral ...

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