On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. F-20684-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Rodríguez, Payne and Waugh.
Plaintiff, Crusader Servicing Corporation (Crusader), the holder of Tax Sale Certificates for property located in Paterson, sued for foreclosure of the property. The property owner, Godwin Avenue Urban Renewal Limited Partnership (Godwin), which had developed the property as affordable housing, filed a third-party claim against the City of Paterson in order to challenge the validity of the Tax Sale Certificates and the underlying tax assessments. Godwin alleged that it owed no taxes because it had obtained from Paterson a tax abatement with payments in lieu of taxes (PILOT) pursuant to the Long Term Tax Exemption Law, N.J.S.A. 40A:20-1 to -22. N.J.S.A. 40A:20-5.1 permits a "non profit corporation organized for the purpose of development, construction and operating a qualified subsidized housing project" to "qualify as an urban renewal entity" and to apply for a tax abatement or "long term tax exemption." During the period of the exemption, the urban renewal entity pays no taxes. Instead, it makes PILOT payments, which are based on a percentage of the gross annual revenues. N.J.S.A. 40A:20-12.
A necessary component of an application for a tax abatement is a Finance Agreement between the urban renewal entity and a municipality, prepared in accordance with N.J.S.A. 40A:20-9. The Finance Agreement must be authorized by the municipal governing body.
Here, Robert Padula, a general contractor, formed Godwin in 1997, for the purpose of redeveloping the property located at 200 Godwin Avenue. Padula constructed forty-nine large apartments consisting of one, two and three bedroom units, which were considered affordable housing with rent restrictions. Godwin applied for a tax abatement. In conjunction with this application it: (1) created a not for profit corporation called the Paterson Urban Renewal Corporation (PURC), which was owned by Godwin and Boston Capital Corp. (Boston Capital); and (2) prepared and submitted the Financing Agreement. Padula was the registered agent for PURC.
By Resolution No. 97-308 dated April 22, 1997, Paterson approved the Financing Agreement for a thirty-year tax abatement to PURC. However, the Agreement was not finalized or executed prior to the commencement of this case. At the core of this litigation is the failure of Paterson officials to follow up on Resolution No. 97-308 by insuring that these essential steps were taken.
Charles Parmelli, the tax assessor for Paterson since 1971, wrote in an internal memorandum dated March 1998 to Susan E. Champion, then corporation counsel for Paterson, that there was no record of the Financial Agreement for Godwin's long-term tax abatement in connection with the Godwin Avenue property. Parmelli reported that as a result he could not proceed to set up a schedule for payments in lieu of taxes. He reiterated this concern in a memorandum to Paterson's Director of the Department of Community Development. There was no response.
In September 2000, Charles Scannella, Paterson's chief internal auditor, wrote to Frank Covello, the assistant corporation counsel, to request a meeting to "establish abatement-billing start dates" for the Godwin project. Scannella testified that he had never put an abatement into effect without a Financial Agreement in place, and he never saw a fully-signed Financial Agreement for the Godwin project. Although he received copies of the 2002 and 2003 financial statements for Godwin, he never billed Godwin for the PILOT program because he "didn't have a signed abatement agreement." According to Scannella, Covello told him "it would be forthcoming."
Padula called Scannella at some point to see if he "got the audits that [he] needed to calculate the abatement." When Scannella told him that he had not, Padula said he would make sure to get him the audits and tax returns. Scannella did not tell Padula that they were "sitting tight awaiting a signed [Financial Agreement]," because it "didn't dawn on [him] to ask [Padula] that." Scannella admitted that by 2002, he had sufficient information to start billing the PILOT payments for the Godwin project.
In a November 2, 2000 letter, Godwin's then counsel, Laurie Rush-Masuret, asked Covello to "please finalize the draft of the Financial Agreement for the tax PILOT program" and that "[t]his should be done expeditiously as the matter has been pending since 1997." In February 2001, Covello faxed a proposed Financial Agreement to Rush-Masuret. She made hand-written changes and forwarded the document to Padula on February 27, 2001, who delivered it to the City Counsel's office. However, Covello, who left the position of assistant corporate counsel very soon thereafter, did not follow up.
In the interim, the Tax Assessor sent tax bills to PURC. These taxes were not paid. On June 28, 2001, Crusader purchased a Tax Sale Certificate in the amount of $7,219.31 for the 2001 real estate taxes and 2001 sewer usage charges for the property. The following year, Crusader purchased a Tax Sale Certificate in the amount of $73,970.53 for the 2002 real estate taxes and sewer charges. The year after that, Crusader purchased a Tax Sale Certificate in the amount of $258,643.31 for the 2003 real estate taxes and sewer charges for the property.
In a memorandum to the Mayor dated December 5, 2002, Parmelli detailed the history of the property since the resolution "allowing" the thirty-year tax abatement in 1997. This memorandum noted that a Financial Agreement was produced on February 20, 2000, but "not signed by City or Developer," and that there were several requests ...