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Borough of Merchantville v. Malik & Son

February 5, 2013

BOROUGH OF MERCHANTVILLE, PLAINTIFF-RESPONDENT,
v.
MALIK & SON, LLC AND/OR SHAUKAT MALIK AND/OR BOBBY MALIK, WELLWOOD REALTY, LP, UBS PRINCIPAL FINANCE, LLC, LASALLE BANK NATIONAL ASSOCIATION, LB-UBS COMMERCIAL MORTGAGE TRUST, BANK OF AMERICA, GERMAN AMERICAN CAPITAL CORPORATION (A MARYLAND CORPORATION), DAWN-BV, LLC, LB-UBS 2000-C3 WELLWOOD MANOR, LLC, WACHOVIA BANK, NA, TAX LIEN SERVICE GROUP, CAMDEN COUNTY MUNICIPAL UTILITIES AUTHORITY, AND THE MERCHANTVILLE PENNSAUKEN WATER COMMISSION, DEFENDANTS, AND LB-RPR REO HOLDINGS, LLC, DEFENDANT-APPELLANT, AND U.S. BANK, AS CUSTODIAN FOR CRESTAR CAPITAL, LLC, DEFENDANT-RESPONDENT.



On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-5997-11.

The opinion of the court was delivered by: Axelrad, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued: January 16, 2013 -

Before Judges Axelrad, Sapp-Peterson*fn1 and Nugent.

The opinion of the court was delivered by AXELRAD, P.J.A.D.

In this condemnation case, we hold that a condemning authority is not obligated under N.J.S.A. 20:3-6 to negotiate with the assignee of a mortgagee which has obtained a final judgment of foreclosure on the subject property. Moreover, the property owner'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.

Defendant LB-RPR REO Holdings, LLC ("LB"), a lien holder, appeals from the Law Division's order for final judgment in favor of plaintiff, Borough of Merchantville ("Borough"), permitting it to exercise its power of eminent domain as to 606 West Maple Avenue and appointing commissioners, and denying LB's motion to dismiss the condemnation complaint. The court found the Borough did not have a duty to engage in bona fide negotiations with LB and satisfied its obligation to engage in such negotiations with the property owner defendant, Malik & Sons, LLC ("Malik"). On appeal, LB argues that, based on the unique circumstances, 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. We are not persuaded by these arguments and affirm.

I.

On November 11, 2011, the Borough sent a written offer to Malik, the owner of record, to acquire its property located at 606 West Maple Avenue, for $270,000. By letter of November 23, 2011, Malik rejected the offer. Consequently, on December 5, 2011, the Borough filed a verified complaint, declaration of taking, and order to show cause adjudicating its right to condemn the property and directing the appointment of commissioners to determine value and fix compensation, naming Malik and other defendants, including LB.*fn2 An amended verified complaint was filed by plaintiff on January 17, 2012, to add other creditors as defendants.

LB filed a motion to dismiss the complaint, and in the alternative, requested discovery and a hearing to establish the date of value. On March 2, 2012, Judge Faustino J. FernandezVina heard oral argument. He concluded that the Eminent Domain Act ("Act"), N.J.S.A. 20:3-1 to -50, did not require the Borough to advise LB it was going to condemn the property or to negotiate with LB. He also found the offer was proper, and the letter and subsequent rejection satisfied the statutory requirement of bona fide negotiations. He additionally determined that further negotiations were unnecessary because there was nothing in the rejection letter other than a request to cover the encumbrances and liens, which did not even include a monetary counteroffer. On March 23, 2012, the judge entered an order for final judgment in favor of the Borough, memorializing his oral findings, denied LB's motion to dismiss the complaint, and appointed commissioners. This appeal ensued.

II.

The subject property, designated on the Tax Map as Block 9, Lots 2 and 3, is 0.48- acres and is improved with a fifty-four unit residential apartment complex known as Wellwood Manor. In 2007, the Borough directed the Merchantville Planning Board (Board) to investigate whether the property*fn3 met the criteria for an area in need of redevelopment as set forth in N.J.S.A. 40A:12A-5. A study was conducted and reports were prepared recommending the property be declared an area in need of redevelopment based on criteria "a" (deterioration/disrepair) and "d" (dilapidation) of N.J.S.A. 40A:12A-5; however, eminent domain proceedings were not instituted against the property at that time.

Due to continued deteriorating conditions on the property, the Borough again directed the Board in 2010 to conduct an investigation to determine whether the property qualified as an area in need of redevelopment. The 2010 report reached similar conclusions as the prior report regarding satisfaction of the statutory criteria for redevelopment. On June 8, 2010, the Board adopted a resolution recommending the property be designated as an area in need of redevelopment and finding it met the statutory criteria. A month later the governing body passed a similar resolution and directed the Board to pursue a redevelopment plan.

On April 26, 2011, the Board adopted a resolution recommending the adoption of the redevelopment and rehabilitation plan for the property. On September 26, 2011, pursuant to resolution, the Borough authorized its mayor to execute an agreement with Citadel Wellwood, LLC (Citadel), designating it as redeveloper and authorizing it to acquire all property necessary for the redevelopment plan.

The Borough also retained Michael Sapio, Jr., MAI, to prepare an appraisal report of the property. He opined the property had an "as is" fair market value of $270,000 as of August 24, 2011, which did not include the costs of tearing down the building, which would exceed this figure. Sapio considered the three valuation approaches but concluded the cost approach was inapplicable because, in part, the property was over 100 years old and there were no apartment land sales. He concluded that under both the sales comparison and income approach, the cost of renovations exceeded the fair market value of the property. Nevertheless, on November 11, 2011, the Borough extended a written offer to Malik to purchase the property for $270,000, and enclosed copies of the appraisal and the Borough's engineer's October 2011 facility assessment evaluation for the apartment complex.

Malik's counsel rejected the offer in a November 23, 2011 letter via facsimile, stating "the amount offered by the borough is far less than my client owes his lender for the property. Therefore, we cannot accept your offer as we would not be in a position to provide clear title to the same and obtain a discharge of the mortgage." The letter further stated:

Please accept this correspondence as formal notification of our rejection of the borough's offer to acquire my client's property. We would however be in a position to discuss more reasonable compensation in an amount which would satisfy all liens and encumbrances on the property. Please feel free to contact me if the borough is willing to discuss a more reasonable sale price for the property.

On the same date, LB's counsel sent the Borough's counsel an email advising that LB had obtained an order of foreclosure and expected that the "court will order the sheriff['s] sale shortly[,]" after which LB "will become the owner of the property." LB claimed it was "the real party in interest" and the Borough should be negotiating with it regarding the proposed acquisition. It further advised of the foreclosure litigation pending before the Chancery judge, representing that the court "noted that while the Owner could conduct negotiations for the sale of the property during the stay period, it could not sell the property or agree to a price without the approval of the lien holder."*fn4 LB also stated it filed a motion returnable December 2, 2011 to proceed with the sheriff's sale on December 7, 2011.*fn5 LB further advised that although it had not fully reviewed the documents supporting ...

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