May 13, 2013

Town’s Failure to Treat Property Owner Fairly Leads to Reversal by Appellate Division

Posted by Cory K. Kestner under Court Decisions, Settlements and Awards | Tags: , , , |
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A New Jersey appellate court recently reversed a trial court’s dismissal of a tax appeal, and found that the City of North Wildwood failed to act fairly in litigation with the property owner.  The property at issue is improved with a seven-story mixed-use tower, a 160-slip marina and a 3900 square-foot marina services building, and a one-story restaurant.  Plaintiff Beach Creek owns the land underlying the Towers but not the condominium units. The owner of the tower has a ninety-nine-year lease for the land underlying the Towers, and the rent is income to Beach Creek.  Following a revaluation in 2006, the City increased the assessed value of Beach Creek’s property from $1,526,200 for 2005, with an equalized value of $3,225,247, to $14,612,900 for 2006. The City assessed the property at $14,288,900, for 2007 and 2008. Beach Creek filed a timely challenge to its 2007 assessment on March 15, 2007 and a timely challenge to its 2008 assessment on March 24, 2008.  Beach Creek filed tax appeals for 2007 and 2008, and an action in the Chancery Division to challenge the 2006 assessment.

In connection with the pending Tax Court actions, the City obtained an appraisal report from its expert on March 12, 2009 which concluded that the “retrospective market value of [Beach Creek's] property for 2006-2009 tax years” was $4.6 million.  The City provided its appraisal to Beach Creek in discovery and filed it with the Tax Court.  As of March 2009, the City had information that the full and fair value of the property in 2007 and 2008 was nearly $10 million lower than the assessed value for those years, and the City thereafter assessed the property at $4.6 million for 2010.

At trial before the Tax Court, Beach Creek’s expert separately valued the different uses on the property after determining that the most reliable appraisal would be one reached by using the valuation method most appropriate for each of the property’s several components.  Beach Creek’s expert used the income approach in valuing the marina and the land underlying the Towers, the cost approach to value the marina services building, and the sales comparison approach to value the restaurant. The value he assigned to the entire property for 2007 and 2008 is the total of the separate values of the components in each of those years.

At the conclusion of Beach Creek’s case, the Tax Court granted the City’s motion to dismiss concluding that Beach Creek had not produced evidence sufficiently definite, positive and certain in quality and quantity to overcome the presumption of validity that attaches to the assessment under New Jersey law. R. 4:37-2(b); Pantasote Co. v. City of Passaic, 100 N.J. 408, 412-14 (1985).  The court first determined that the hybrid approach used by Beach Creek’s expert of “taking one approach for each of the three or four aspects of the property and then somehow just adding them together and coming up to value,” was unprecedented.  Next, the court found Beach Creek’s expert’s application of the cost and comparable sales approaches flawed, and therefore the court had no basis for assigning a true value to the property based on Beach Creek’s evidence.

On appeal, the Appellate Division found Beach Creek’s evidence was adequate to withstand the City’s motion. As to a lack of precedent for the hybrid valuation approach, the Appellate Division cited to Livingston Mall Corp. v. Livingston Twp., 15 N.J. Tax 505, 508-09 (Tax 1996), where the court was faced with valuing a mall that included three anchor department stores and non-anchor mall stores that were leased. The Livingston Mall court concluded that the income approach failed to capture the value of the anchor stores because of a lack of data, and therefore it would be appropriate to use the cost approach for the anchor stores, and the income approach for the non-anchor stores which were leased.

Finally, the Appellate Division found the City’s moving for dismissal based on Beach Creek’s failure to overcome the presumption of validity raised a serious question about the City’s performance of its obligation under F.M.C. Stores Co. v. Borough of Morris Plains, 100 N.J. 418, 426 (1985), to “turn square corners” in litigation.  The City, intending to rely on the $4.6 million appraisal at trial, was in possession of evidence that the 2007 and 2008 assessments were grossly erroneous. The Appellate Division found the City’s actions were inconsistent with its obligation to “comport itself with compunction and integrity.”  Thus, the Appellate Division rejected the court’s conclusion that Beach Creek failed to overcome the presumption of the validity afforded to the quantum of these $14.3 million assessments for 2007 and 2008.  The undisputed evidence in the City’s report established that the $14.3 million assessments for 2007 and 2008 were well off the $4.6 million report value, and that sufficient to overcome any presumption that the assessments’ quantum was valid.

As outlined in F.M.C. Stores, the square corners doctrine requires that no government action be taken in litigation with the aim of gaining an unfair advantage over a private citizen.  Thus, the government may not “conduct itself so as to achieve or preserve any kind of bargaining or litigational advantage” over a member of the public.  As the F.M.C. Court observed, this means that “government may have to forego the freedom of action that private citizens may employ in dealing with one another.”Litigation strategies and actions that may be expected in litigation between two private parties will be scrutinized when taken on behalf of a government agency in litigation with a provide citizen.

The property owner in Livingston Mall Corp. v. Livingston Twp., 15 N.J. Tax 505, 508-09 (Tax 1996) was represented by Thomas Olson, Esq. of McKirdy & Riskin, P.A.

A copy of the Tax Court’s opinion in Beach Creek Marina v. North Wildwood City may be found here.

For more blog posts on appraisal report issues, please see the following:

Experts’ Opinions Accepted Over Town’s Objections

Real Estate Tax Appeal Evidence: Admissible in Eminent Domain Case?

Expert’s “Gut Feeling” on Costs Survives Dismissal Claim

Court Disapproves Averaging of Comparable Sales

 

April 9, 2013

Experts’ Opinions Accepted Over Town’s Objections

Posted by Cory K. Kestner under Court Decisions, Settlements and Awards | Tags: , , , , |
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Plaintiff Route 21 Associates challenged the assessments imposed by Defendant Township of Belleville on vacant land for tax years 2008, 2009, and 2010. The matter was scheduled for trial where the Tax Court accepted each party’s two witnesses as experts, one in real estate appraisal and one in environmental remediation, and admitted their reports into evidence. Both valuation experts agreed that the subject property’s unimpaired value should first be determined by using the sales comparison approach and that the unimpaired value should be reduced by the costs of remediation. The environmental experts agreed that a 6% discount factor should be applied to the subject property’s 10 year remediation costs and that the unimpaired value should be reduced by the discounted costs, plus the actual or already expended environmental costs, plus 10% for entrepreneurial risk. They differed in the method of offsetting the actual and projected costs for the unimpaired value.

At the close of proofs, Belleville moved to dismiss Route 21’s complaints pursuant to R. 4:37-2 on the grounds that Route 21’s experts each provided an impermissible “net” opinion.  Specifically, Belleville argued that Route 21’s valuation expert was unfamiliar with his sales, his adjustments to the sales was too great and rendered the information meaningless, and his reliance on the environmental experts opinion rendered his opinion a net opinion because the environmental report was a net opinion.

The Tax Court denied the motion. First, the court found the opinion was not flawed and inadmissible when some particular facts or conditions were not accounted for there were other substantive bases of support therein.  Similarly, the court noted that excessive adjustments went to the question of the expert’s credibility, and the weight to be given such adjustments depended on the facts and reasons supporting the appraiser’s conclusions.  Finally, the court found that Route 21’s environmental expert supported the conclusions in his report, and adequately explained the facts supporting those conclusions.

After reviewing all of the evidence presented to the court, the subject property’s fair market value as impaired was determined for each of the tax years under appeal, and an assessment was established by applying the Chapter 123 ratio as required.

A copy of the Tax Court’s opinion in Route 21 Associates v. Township of Belleville may be found here.

For more blog posts on environmental issues and appraisal report issues, please see the following:

“Special” Valuation Rules N/A To Environmentally Remediated Property

City of Elizabeth Ordered to Pay Motel Owner from Environmental Escrow

Environmental Impacts in Real Estate Valuation Litigation

Expert’s “Gut Feeling” on Costs Survives Dismissal Claim

Court Disapproves Averaging of Comparable Sales

 

February 5, 2013

More on Dune Replenishment – Taking Private Property Without Just Compensation

Posted by Joseph Grather under In the news, Legislative Developments | Tags: , , , , , |
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Photo courtesy of wirednewyork.com

Photo courtesy of wirednewyork.com

The Borough of Mantoloking is one of several beachfront municipalities that has asked owners of beach-front property to donate their private property to the municipality.  A copy of the most recent form of dedication agreement (identified as an easement) is available on the Borough’s website here.  The Borough is attempting to force property owners to turn-over their private property for the public good, without payment of compensation.   The guilt trip being laid on the property owners is that the Borough will not be able to participate in an Army Corps of Engineers dune replenishment program without the easements in hand.  The sign-off on the website – ” Thank you all for your patience with this process.  We will do all that we can to make this project happen once we have the easements in hand.  The very existence of our community depends on it.”   This last statement underscores the public necessity of the easements, and underscores why the Constitution demands just compensation – the purpose of the taking is to benefit the general public at large.  A private citizen cannot be forced to pay for a public improvement project by forced donation of private property.  It’s no different from exacting a cash payment from only the beachfront property owners in order to benefit the entire community.

Toms River is another municipality that is seeking to exact private property without just compensation.  As reported by the Toms River Patch, legal counsel for that municipality suggests that the town is without the lawful authority to rebuild the dunes without beachfront property owners’ donating their property.  If dune replenishment is a public use, the municipality is reposed with the lawful authority from the ultimate source of law – the New Jersey Constitution.  But, again, the municipality wants to lay the blame on the property owner.

Notably, the Army Corps Report referenced in the Mantoloking easement was issued 10 years ago!  It is only now, post-Superstorm Sandy devastation, that they believe they have the political sway to engage in such unconstitutional conduct.   Why didn’t they implement the program ten years ago?  The cost to replenish the dunes is only a fraction of the cost of repairing the damage caused by Sandy.

I’m sure many of our readers do not own property along the shore-line or live on the beachfront (yours truly does not).  Yet, if we permit government to take that first step down the slippery slope of unconstitutional conduct, we have only ourselves to blame when we’re looking down the wrong end of the barrel of some other heavy-handed government conduct.

And, in the end, we, the taxpayers of the United States of America, have already paid the bill to restore the beaches the tune of $51 billion dollars ($4 billion of which has been allocated to the Army Corps to rebuild the beaches).   Notably, over the past 50 years, the total expenditure of beach replenishment in New Jersey has been about $1 billion.  Let’s insist that government spend that money wisely and do the rebuilding job right the first time.   Why should the beachfront owners have to pay for this benefit twice?

For more background on these issues, check out our earlier blog posts:

NJ Beach Replenishment Saga Continues, This Time in Sea Bright

NJ Beach Replenishment Town Seeks End Around in Federal Court

Harvey Cedars Complaining About Payments to Property Owners For Beachfront Takings

 

Related articles
 

July 17, 2012

“Special” Valuation Rules N/A To Environmentally Remediated Property

Posted by Anthony F. Della Pelle under Court Decisions | Tags: , , , , |
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Yesterday a New Jersey appellate court narrowed the scope of a property owner’s liability for environmental remediation when the owner’s property is taken via eminent domain.  In Borough of Paulsboro v. Essex Chemical Corporation, the Superior Court, Appellate Division (Skillman, J.A.D.) held that a property owner that had obtained approval of a closure plan for a landfill was not subject to any additional liability for remediation of the property, and therefore would receive the full fair market value of its property in the condemnation proceeding.

In Essex Chemical, the property owner had obtained approval from the New Jersey Department of Environmental Protection for the closure of a 17-acre landfill (containing a 40-foot high mound of gypsum) located on a 67-acre riverfront parcel with frontage on the Delaware River and the Mantua Creek.  the property was condemned by the Borough of Paulsboro, which did not originally value the property “as if remediated” as required by Housing Authority of New Brunswick v. Suydam Investors, 177 N.J. 2 (2003) and N.J.Transit Corp. v. Cat in the Hat, LLC, 177 N.J. 29 (2003).   However, when the property owner moved to withdraw the Borough’s estimated compensation which was on deposit with the Superior Court Trust Fund, the Borough objected, contending that the funds should be escrowed to remediate the landfill.   The trial court held that the costs of remediating the landfill (by removing the mound of gypsum) would not fall within the concept of recoverable remediation costs contemplated by Suydam, and denied the Borough’s application to create an environmental trust escrow.  The Borough then appealed.

The appeals court affirmed the decision below, and reasoned that in situations where a site has already been remediated with approval from the NJ Department of Environmental Protection, the condemnee is not subject to any additional liability for remediation, and the “special” valuation methodology established by Suydam and Cat in the Hat, causing the property to be valued “as if remediated” therefore does not apply.   Although the parties in Essex Chemical agreed that the property — containing an “immutable condition” of a 40-foot high mound of inert gypsum — was less valuable than a flat, easily-developable  property, and the valuation experts for both parties took that physical attribute into account in their appraisals, that fact did not entitle the condemning authority to contend that the landfill removal costs were “remediation” costs which could be subject to the environmental trust escrow, because no further environmental remediation could be required of the subject property.

A copy of the appellate court’s opinion is available here.  Coverage by the Gloucester County Times is available here.

This case represents a victory for property rights and should represent a warning to condemning authorities that properties which have obtained approvals for remediation or are in the process of being remediated should not be subject to claims for further remediation by the condemnor.

Related articles
 

June 20, 2012

Should Governments Use Eminent Domain to Acquire Underwater Mortgages?

Posted by Cory K. Kestner under In the news | Tags: , , , , , , |
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In an unprecedented move, a group of venture capitalists out of San Francisco hopes to convince county and local officials in California to use the power of eminent domain to seize control of private residential mortgage-backed securities with the intent of cutting the principal balances of negative-equity borrowers.

As proposed, Mortgage Resolution Partners would work with local governments to find institutional investors willing to provide tens of billions of dollars to finance the condemnation process to avoid using taxpayer dollars to acquire millions of distressed mortgages.  The local government would take title to the loans, without taking title to the actual home, and pay the original mortgage owner the fair value with the money provided by institutional investors.  Mortgage Resolution Partners would then allegedly work to restructure the loans to reduce homeowners’ monthly mortgage payments, while selling the restructured loans to hedge funds, pension funds and other institutional investors with the proceeds paying back the outside financiers.  Additionally, Mortgage Resolution Partners would collect a fee on each restructured loan.

In New Jersey, the courts have broadly interpreted the language of the Local Redevelopment & Housing Law (LRHL) and Eminent Domain Act of 1971 that defines “property.”  Citing Harrison Redev. Agency v. DeRose, 398 N.J. Super. 361, 409-11 (App. Div. 2008)*, the New Jersey Supreme Court determined that “the language the Legislature used to define ‘real property’ and ‘property’ in the LRHL and the Eminent Domain Act cross-reference each other and require cognate interpretations.”  Town of Kearny v. Discount City of Old Bridge, Inc., 205 N.J. 386, 405 (2011).  The LRHL defines “real property” as: “all lands, including improvements and fixtures thereon, and property of any nature appurtenant thereto or used in connection therewith, and every estate, interest and right, legal or equitable, therein, including terms for years and liens by way of judgment, mortgage or otherwise, and indebtedness secured by such liens,” N.J.S.A. 40A:12A-3, while the Eminent Domain Act defines “property” as “land, or any interest in land . . . .”  N.J.S.A. 20:3-2(d).  The express mention of a mortgage, in addition to the catch-all “any interest in land” could potentially provide a government entity with support to condemn a mortgage interest.

Even if the concept of using eminent domain to “take” mortgage interests was accepted by New Jersey’s courts, there could still be an argument over the “fair market value” of the mortgage.  Fair market value in New Jersey has been determined as the price a willing and able buyer would pay to a willing seller.  The “property” owner, the holder of the mortgage, would likely argue that mortgage should be valued based on the existing obligation of the mortgagee to pay the agreed upon principal and interest.  The condemning agency would likely argue a value based on the current reduced value of the land secured by the mortgage.  In New Jersey, the question of value would be decided by a judge and jury.

This will be an interesting one to watch.

For more on this story, please see the following news articles and opinion pieces:

Investors tout ‘condemnation’ for housing fix

A solution for underwater mortgages: Eminent domain

RPTInvestors tout controversial ‘condemnation’ for housing fix

Investors With Ties To Buffett, Soros, Obama Plan Mortgage Eminent Domain Grab

Eminent domain is floated for mortgages

SAN BERNARDINO COUNTY: Controversial mortgage fix considered

County Studies Eminent Domain to Address Mortgage Crisis

*The property owners in DeRose were represented by McKirdy & Riskin’s Richard DeAngelis, Edward McKirdy and Anthony Della Pelle.

 

May 8, 2012

LBI Town Forum Shopping to Avoid Paying Just Compensation?

Posted by Joseph Grather under In the news | Tags: , , , , , , , |
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The Press of Atlantic City reports that Long Beach Township intends to use eminent domain in its forthcoming beach replenishment cases involving oceanfront properties within its boundaries.  However, unlike its neighbor – Harvey Cedars – Long Beach will apparently be seeking to avoid trials in New Jersey Superior Court, where property owners have received just compensation as due under the New Jersey Constitution.  The Township hopes to adjudicate its takings cases in federal court.

The article says that Long Beach Township Mayor Joseph Mancini believes that the federal courts will look “more favorably” on the beach replenishment project.  Apparently what the Mayor means is that the federal courts may accept the municipality’s argument – already rejected by New Jersey trial and appellate courts – that property owners aren’t entitled to any compensation because the beach replenishment program provides a “special benefit” to those property owners.

Image

Photo courtesy http://en.wikipedia.org/wiki/Long_Beach_Township,_New_Jersey.

Long Beach’s latest efforts makes us wonder why the owners of private beach-front property on Long Beach Island should not be afforded their constitutionally guaranteed right to just compensation for any damages caused by government’s erection of a sand dunes that will block valuable ocean views.  New Jersey Courts have expressly recognized that such is a taking for which both the Federal and State Constitutions require payment of just compensation.
Now, Long Beach Township wants to try to deny private property owners their constitutional rights by taking their property in federal court.  We’ll see how they make out and keep you posted.
 We blogged about Harvey Cedars complaints back in November of 2011.
And about related beach access issues in May of last year.
Related articles
 

March 30, 2012

Real Estate Tax Appeal Evidence: Admissible in Eminent Domain Case?

Posted by Cory K. Kestner under Court Decisions, In the news | Tags: , , , , , , , |
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A Kansas property owner recently challenged the $7.5 million award of court-appointed appraisers in an eminent domain matter, only to have the award reduced to $6.95 million at trial based on evidence of the property’s value from a prior tax appeal.  The owner, KC Mall Associates, filed a motion before the trial began to prevent the condemnor from presenting evidence of a 2005 tax appeal.  KC Mall Associates argued that the tax appeal was filed to force the local government to abide by an assessment freeze as part of a revitalization plan.  The government argued that the tax appeal information was not related to the revitalization plan, and was an admission against interest.  The Kansas Supreme Court found “tax appeal evidence was relevant to—both material to and probative of—the fair market value of the subject property.”

In New Jersey, a property’s assessed value is not admissible as proof of a property’s market value.  However, New Jersey Rule of Evidence 803(b)(2) could permit a valuation report, or other valuation evidence, from a property tax appeal to be admitted into evidence as an admission against interest.  Notably, to be admissible, the rule does not require the statement to have been against the party’s interest at the time that the statement was made.  However, the mere existence of an expert report is insufficient to have it admitted against a party, and the report must have been previously relied upon by the party to qualify as the party’s statement.  See Skibinski v. Smith, 206 N.J. Super. 349, 353-54 (App. Div. 1985).

A copy of the Kansas Supreme Court’s opinion in Kansas City Mall Assoc., Inc. v. Unified Gov’t of Wyandotte County/Kansas City, Kansas, No. 102163 (Mar. 16, 2012) can be found here.

For news coverage of the story, please see the following:

Kansas Supreme Court upholds decision in Indian Springs mall case – Wyandotte Daily News

KCK hopes Indian Springs will be its next success story – Kansas City Star

For more blog posts on expert testimony in eminent domain cases, please see the following blog posts:

Expert’s “Gut Feeling” on Costs Survives Dismissal Claim

Experts’ Opinions on Golf Course Valuation Not Up to Par

Discounted Jury Verdict Upheld on Appeal

Court Disapproves Averaging of Comparable Sales

 

January 30, 2012

Jury Awards Double NJ Transit’s Offer for Property Taken by Eminent Domain

Posted by Cory K. Kestner under Court Decisions, In the news, Settlements and Awards | Tags: , , , , , , |
[2] Comments 

The families who owned the Mother’s Park and Ridelot in Wayne, New Jersey were awarded $2.6 million in just compensation by  Passaic County jury last week for the taking of their property through eminent domain by NJ Transit.

Courtesy of bing.com

The property was originally acquired by DJ Properties to be converted to a restaurant, but the owner instead leased the property to the New Jersey Department of Transportation in 2002 for the park and ride use.  In a trial in Paterson where New Jersey Superior Court Judge Philip Mizzone, Jr. presided, the jury deliberated two and a half hours before awarding twice the $1.3 million offered by NJ Transit for the property three years ago.  The appraiser for the property owners, DJ Properties, estimated the property’s value at $2.9 million.  For more on this story, please click here for Nick Clunn’s article on NorthJersey.com.

The property owners in this matter were represented by McKirdy & Riskin’s John H. Buonocore, Jr., who was recently named as “Newark Area Best Lawyers Eminent Domain and Condemnation Lawyer of the Year” for 2012 by “Best Lawyers”.  For more on Mr. Buonocore’s designation by Best Lawyers, click here for an article on the Morris News Bee.

 

October 26, 2011

Prior Owner’s Assent Does Not Defeat Inverse Condemnation Claim

Posted by Joseph Grather under Court Decisions | Tags: , , , , , , , |
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Ciaglia v West Long Branch – Inverse Remedy Awarded by Appellate Division

Yesterday, the Appellate Division of New Jersey’s Superior Court reversed a trial court that had dismissed a property owner’s lawsuit alleging that West Long Branch’s zoning regulations amounted to an inverse condemnation of an undersized lot created by a subdivision approved by the Planning Board in 1957.  A full text of the decision may be found here.

While the land use, procedural, and ownership history of the lot was very complicated, the appellate court sifted through the municipality’s procedural objections arising from the long history, and found that a regulatory taking had occurred because the Zoning Board of Adjustment’s recent denial of the property owner’s request for a hardship variance meant that the lot had been zoned into inutility.  This decision was made on appeal, even though the trial court had earlier ruled that a prior owner’s assent to a subdivision in the 1950s creating the undersized lot meant that the hardship was “self-created”.  The appellate court focused upon the impact of the local zoning, not events which had occurred more than 50 years earlier.

The Court therefore remanded for entry of judgment requiring the municipality to commence condemnation proceedings to value the land taken by government regulation.

 

August 11, 2011

Electricity Shocks Property Owners, But Not The Court

Posted by Joseph Grather under Court Decisions | Tags: , , , , , , , |
1 Comment 

Shock Treatment Insufficient to Constitute Inverse Condemnation

Yesterday, a New Jersey appellate court affirmed a jury verdict awarding $195,000 in “nuisance” damages to a Brick Township couple, but refused to reverse the trial court’s finding that an electric utility company’s stray “neutral to earth” voltage running rampant through their backyard was insufficient to amount to taking. Smith v. Jersey Central Power & Light Company (A-2801-08).  Mr. Smith received his first shock treatment back in 2002 when he attempted to get into his hot tub.  The problem persisted to the point where the couple removed their swimming pool, hot tub, and children’s swing set and abandoned use the back-yard altogether for a period of time.

The jury awarded $145,000 for property damage, and $50,000 for interference with the use of the property. Prejudgment interest and a portion of taxed costs were added to the jury verdict.  Immediately after trial, the property owners installed a new swimming pool. JCP&L moved to set aside the verdict on that fact alone. That motion was denied.

The property owners appealed the dismissal of the takings claim, and the denial of taxed costs, suggesting that the circumstances constituted an inverse condemnation.  JCP&L cross-appealed on the denial of its motion to set aside the verdict and raised several trial errors.  The appellate court affirmed on all counts, specifically rejecting the property owners’ claim that a taking occurred.

The full text of the opinion may be found here.

 

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