Porzio Real Property

Gimme Shelter: COAH Stay = Affordable Housing Delay

2013-04-19T13:34:52-04:00

No news is bad news for low and moderate income families in need of affordable housing. With two cases pending before the New Jersey Supreme Court, one challenging COAH’s second attempt at the Third Round Rules, and one challenging an executive order requiring municipalities to remit unspent affordable housing trust funds to the state, municipalities are moving more slowly than ever to create realistic opportunities for the creation and construction of affordable housing. As a result of these litigations, COAH has stayed its review of municipal petitions for substantive certification, allowing municipalities to argue they have “technically complied” with COAH’s requirements while deferring the creation of affordable housing indefinitely. With the availability of affordable housing trust funds questionable, and the exact number of a municipal fair share obligation in doubt, municipal action to create affordable housing is delayed until at least the Supreme Court has rendered its decisions, and, if necessary, COAH promulgates new regulations.

For the majority of towns, this uncertainty has provided “an excuse to do nothing, as characterized by Kevin Walsh, associate director of the Fair Share Housing Center. Some municipalities have claimed that they are unable to proceed with implementing the affordable housing projects and programs included in their Third Round Fair Share Plans. The unarticulated concern behind this purported paralysis is that municipalities want to avoid creating affordable housing in excess of their COAH-required minimum and hope that the Supreme Court review will result in a regulatory overhaul reducing their fair share obligations. Other municipalities have articulated a bolder position, interpreting the Appellate Division’s opinion and the pending Supreme Court review as invalidation of COAH’s Third Round altogether, adopting a position that the third round does not exist, and therefore, no affordable housing need be provided for this round. Regardless of whether municipalities are dragging their feet in the creation of affordable housing or rejecting the Third Round on a wholesale basis, the result is that these municipalities, as described by Mr. Walsh, “have no sense of urgency… They are sort of content to just hang out there with no money being spent” from their affordable housing trust funds and no affordable housing being built.

Even municipalities who purport to be committed to create affordable housing have claimed to encounter road blocks as they attempt to implement their fair share plans by utilizing funds in their affordable housing trust funds. The law provides that municipalities must “commit” to spending their affordable housing funds within four years of their receipt, or forfeit the funds to the state affordable housing trust fund. Municipalities have complained that the law does not define “commit,” and they are unsure of whether their funds are immune from forfeiture or due to the state. To further complicate the issue, the Christie administration earmarked the forfeited funds as revenue in 2012-2013 state budget, prompting an injunction from the appellate panel.

Thus, the unused trust fund money, as well as the Third Round rules, remain in limbo and affordable housing remains unbuilt. As observed by Mr. Walsh, “the losers all around on this are the lower-income households” who are in need of affordable housing.

More Courts Reject Eleventh-Hour Attempts To Avoid Foreclosure Based On An Alleged Lack Of Standing

2013-03-28T18:10:54-04:00

by: Peter J. Gallagher

Two more Appellate Division panels have refused to allow defendant's in foreclosure lawsuits to raise standing as an eleventh-hour defense. As we previously reported -- Changing Tide in Forclosure Litigation? Courts Taking Closer Look When Defendants Assert Lack Of Standing At Last Minute -- there is now a clear trend against allowing defendants to stay silent in the face of a foreclosure lawsuit only to appear at the last minute, usually on the eve of a sheriff's sale, and seek to vacate final judgment based on an alleged lack of standing to foreclose. Two recent Appellate Division cases continue to bring this point home.

In IndyMac Bank FSB v. DeCastro, a residential borrower moved to vacate final judgment and dismiss the complaint 15 months after it was entered, arguing that he was not served with the complaint. The motion was denied. Defendant filed a second motion to vacate, arguing, for the first time, that the bank lacked standing to foreclose because it was not assigned the mortgage until after the complaint was filed. This motion was denied as untimely and defendant appealed. In an opinion, dated March 13, 2013, the Appellate Division affirmed. In its decision, among other things, the Appellate Division rejected defendant's standing argument, noting: "[W]e have now made clear that lack of standing is not a meritorious defense to a foreclosure complaint." Moreover, the Appellate Division held that defendant's standing argument was meritless "particularly given defendant's unexcused, years-long delay in asserting that defense or any other claim." In arriving at this decision, the Appellate Division relied on many of the cases discussed in our prior post.

Similarly, in WellsFargo Bank, N.A. v. Lopez, a different Appellate Division panel rejected another residential home owner's last-minute attempt to raise standing as a defense to the foreclosure complaint. The facts in that case were a bit more egregious because the borrower contributed to the four-year delay between the entry of default and the filing of his motion to vacate by filing numerous bankruptcy petitions and seeking a stay to attempt to short sell the property. Nonetheless, the Appellate Division affirmed the trial court's denial of the motion to vacate holding, among other things, that the lack of standing, even if true, was not a meritorious defense to a foreclosure complaint, particularly in the post-judgment context. Again, the Appellate Division relied primarily on the cases included in our prior post.

Appellate Division Endorses "Waiver Rule:" DEP Allowed To Waive Regulations In Limited Circumstances

2013-03-21T11:22:09-04:00

by: Peter J. Gallagher

On March 21, 2013, the Appellate Division rejected a challenge to the so-called Waiver Rule (N.J.A.C. 7:1B-1.1, et seq.), which allows the New Jersey Department of Environmental Protection (”DEP”) to waive certain environmental regulations on a case-by-case basis. On behalf of amicus New Jersey Business and Industry Association, Porzio had argued that the Waiver Rule represents a common sense and measured approach to regulation. In its decision, the Appellate Division appears to have agreed.

The history of the Waiver Rule is not long. On January 20, 2010, Governor Christie issued Executive Order No. 2, which sought to better leverage New Jersey’s “enormously valuable assets” by, among other things, “establishing ‘Common Sense Principles’ for State rules and regulations that will give this State the opportunity to energize and encourage a competitive economy to benefit businesses and ordinary citizens.” One of these “Common Sense Principles” required State agencies to “[a]dopt rules for ‘waivers’ which recognize that rules can be conflicting or unduly burdensome,” and further required these agencies to “adopt regulations that allow for waivers from the strict compliance with agency regulations,” provided that “such waivers shall not be inconsistent with the core missions of the agency.”

Although it did not identify Executive Order No. 2 as the source of its authority to do so, shortly after Governor Christie issued the Order, the DEP began developing rules and regulations designed to address the concerns regarding the impact of excessive regulation on New Jersey’s economy. The result was the Waiver Rule, which was only adopted after the DEP solicited public comments to the proposed Waiver Rule through an open public comment period, during which DEP received comments from more than 500 interested parties, and during a public hearing.

Notwithstanding its name, the Waiver Rule is not a blanket waiver of all regulations. Instead, a waiver will only be available when one of four criteria are met: (1) a public emergency has been formally declared; (2) conflicting rules between Federal and State agencies or between State agencies are adversely impacting a project or preventing an activity from proceeding; (3) a net environmental benefit would be achieved; and/or (4) undue hardship is being imposed by the rule requirements. N.J.A.C. 7:1B-2.1. Moreover, the Waiver Rule identifies 13 rules and requirements that cannot be waived under any circumstances.

A group of Appellants, led by the American Littoral Society Association of New Jersey challenged the Waiver Rule on several grounds. Today, the Appellate Division rejected that challenge. First, the court held that the Waiver Rule was a proper exercise of the DEP's rule-making authority. Specifically, the court held:

"[T]he power to promulgate a regulation implies the incidental authority to suspend or waive its application on certain limited, well-defined circumstances provided such exemption does not circumvent any legislative enactment or purpose, or federal law, is consistent with the agency's statutory core mission and objectives, is accomplished through a properly adopted regulation pursuant to the [Administrative Procedures Act], and establishes appropriate and clear standards for the exercise of agency discretion . . ."

Second, the court held that the Waiver Rule satisfied all of the caveats set forth above -- it was limited in its application, was based on well-defined standards, and was not inconsistent with the DEP's core mission.

The court did agree with Appellants that certain "guidance documents" posted by the DEP on its website in connection with the Waiver Rule were improper. The court held that these documents went beyond “merely facilitating administrative implementation of the rules . . . and actually, to some extent, announce[d] new substantive requirements.” As a result, they amounted to the DEP effectively announcing new rules without following the procedures set forth in the Administrative Procedures Act. Accordingly, the “guidance” documents were struck down. But, the court was careful to explain that this did not in any way change its conclusion that the Waiver Rule was proper.

No Escape: Highlands Council Review of Wastewater Management Plans

2013-03-08T09:00:00-05:00

The Highlands Council has developed policy to guide its review of Future Wastewater Service Areas in accordance with Executive Order 114, Governor Corzine’s order that required coordination of administration of the Highlands Act, wastewater management planning, and affordable housing development.

For municipalities in the Preservation Area and those that have opted to conform to the Highlands Act and have received Highlands Council approval of their Petition for Plan Conformance, the Council uses a template to develop a draft Wastewater Management Plan with the municipality. Once drafted, the Wastewater Management Plan is then to the NJDEP for review and adoption. There are currently thirty-nine draft Wastewater Management Plans and two have been adopted (Byram and Washington Township (Morris County)).

For municipalities with Planning Area lands that have not elected to conform to the Highlands Act, the Highlands Council has implemented a procedure, pursuant to its interpretation of Executive Order 114, wherein it still reviews the municipal Wastewater Management Plan. If a municipality proposes a Wastewater Management Plan that extends sewer service outside the Existing Community Zone of the Highlands mapping of the municipality, the Highlands Council is now requiring a municipality to adopt a “Water Conservation Management Plan.” This Water Conservation Management Plan is meant to address water supply concerns from the source side. As of now, Mount Olive is the only Highlands municipality that has a Water Conservation Management Plan in place. Once a full Wastewater Management Plan has been adopted, or a site specific ordinance for a site outside the Existing Community Zone has been adopted, the municipality is then required to adopt three model ordinances designed to promote water conservation: (1) on Outdoor Landscaping to provide for recharge, etc.; (2) on Low Flow/High Efficiency Appliances, and (3) Stormwater Management (Low Impact Developments).

This procedure, adopted by the Highlands Council is not codified in any statutes or regulations, and is likely still unknown to many municipal planning departments and property owners. There is the potential that this policy will result in delays to developments, as municipalities struggle to comply with the various planning and legislative requirements imposed by the Highlands Council. To the extent developers or municipal planners are aware of projects that will require sewer service outside of the Existing Community Zone, even in nonconforming Highlands municipalities, they should budget significant time to satisfy the Highlands Council requirements.

Porzio Wins Age Conversion Complaint

2013-03-06T13:50:29-05:00

On February 28, 2013, Judge O’Connor of the Warren County Law Division of the Superior Court of New Jersey, issued an opinion in Meadows at Mansfield, LLC v. Mansfield Township Land Use Board, Docket No. WRN-L-62-12, that an application to convert an age-restricted site plan to a non-age-restricted site plan pursuant to N.J.S.A. 45:22A-46.3 et seq. could not be denied on the basis of substantial detriment to the public good, zone plan, or zoning ordinance. Porzio Bromberg & Newman represented the developer, Meadows at Mansfield, in its application and complaint seeking conversion of its age-restriction.

The Board had based its denial primarily on the negative fiscal impact associated with the conversion of the age restriction, resulting in school-aged children living at the site and increased costs to educate these children for the Township. The Court rejected this reasoning, finding “that the proposed non-age restricted development would result in an influx of children, resulting in a rise in educational costs to the township, is not a factor on which the board could rely in determining whether the conversion could be granted without substantial detriment to the public good. The board cannot act in such a way so as to exclude children from a development or a municipality because the cost to educate them is too high.”

This reasoning is consistent with the Appellate Division’s review of the same issue last week in Sharbell Building Company v. Planning Board of the Township of Robbinsville. There, the Appellate Division opined, “The Board's unfortunate focus on the project's impact to the public fisc, rather than to land use concerns, renders its decision palpably unreasonable.” The courts have thus made clear that any fiscal impact resulting from a conversion is not tantamount to substantial detrimental impact on the public good.

The Mansfield court also rejected the Board’s other concerns about substantial detriment to the public good, noting that the converted application would generate the same number of residents (albeit with a greater percentage of children), improved the project’s environmental impact, reduced municipal responsibility for road maintenance, and that access to transportation, shopping, and medical services from the site remained constant regardless of the conversion application.

With respect to substantial impairment of the zoning ordinance, the Mansfield court noted that the Conversion statute provides that the use as approved, and to be converted, is to be deemed permitted. Because the converted non-age-restricted development is a permitted use under the Conversion statute, the Court reasoned that “such use will not substantially impair the intent and purpose of the zoning ordinance.

Finally, the Court concluded that the conversion did not substantially impair the zone plan, reasoning that the municipal zone plan already permitted residential housing within its industrial zone, by virtue of the underlying age-restricted zoning.

Eminent Domain Reform Advances In The Garden State

2013-03-05T10:22:23-05:00

by: Peter J. Gallagher

New Jersey is one step closer to updating its eminent domain laws for the first time since the U.S. Supreme Court handed downs its landmark Kelo v. City of New London decision in 2005. On March 4, 2013, the Senate Community and Urban Affairs Committee voted unanimously to approve a bill (S-2447) that would, according to a press release from Senate Democrats, “create a two-track system for redevelopment, establishing separate requirements for redevelopment projects that would involve condemnation and for those that would not.” The two tracks would protect homeowners whose properties might otherwise be subject to condemnation, while also creating a more streamlined process for municipalities undertaking redevelopment projects that do not involve condemnation.

According to the press release:

The legislation would require municipalities to advise property owners within a proposed redevelopment area of the municipality’s intent to use or not use eminent domain to facilitate a redevelopment plan at the outset of the redevelopment study as well as to provide specific notice of such designation. Unless a municipality notifies owners of property located in a proposed redevelopment area that the designation will allow the municipality to take property located in the area by eminent domain – or that the proposed area is a Condemnation Redevelopment Area – the “Local Redevelopment Housing Law” would not authorize the use of eminent domain.

The bill would also authorize municipalities that intend to implement redevelopment initiatives without using eminent domain to do so but to still take advantage of the other tools available under the LRHL that encourage and facilitate economic development activities, create job opportunities, increase commerce, and enhance ratable values within their communities during these difficult economic times. This process would require designating the proposed area as a Non-Condemnation Redevelopment Area.

Having made it out of the Senate Community and Urban Affairs Committee, the bill now heads to the Senate Budget and Appropriations Committee. Stay tuned for more updates.

When Can Foreclosing Lenders Be Accused Of Acting In Bad Faith?

2013-02-28T16:20:58-05:00

by: Peter J. Gallagher

In a recent decision, the Chancery Division denied a lender’s motion to strike a borrower’s contesting answer in a foreclosure lawsuit, holding that the borrower had adequately pled a claim that the lender acted in bad faith. While this decision is unique based on the facts of the underlying dispute, it does, by contrast, serve as a reminder that lenders generally cannot be held to have acted in bad faith when they simply attempt to enforce the terms of loan documents as written.

In Wells Fargo Bank, N.A. v. Schultz, plaintiff obtained a mortgage from World Savings Bank (which later changed its name to Wachovia Mortgage, FSM, which was later acquired by and merged into Wells Fargo) under a “Pick-a-Payment” mortgage program. Several years later, this program became the subject of a class action lawsuit, the settlement of which provided that Wells Fargo both pay class members, including defendant Schultz, a small sum and also make loan modifications available to them. It is the second of these requirements that ended up getting Wells Fargo in trouble. Defendant presented evidence to the court that led Judge Doyne to conclude that she was “getting the run around” from Wells Fargo, including by being told that she failed to submit documents that she certified that she had submitted, and when Wells Fargo eventually confirmed that she had submitted the documents, telling her that the modification program was no longer available. Judge Doyne observed that defendant may not have a right to be approved for a specific modification, but that once Wells Fargo made one available to her, it was obligated to “act in good faith as to the provision of the modification.” To be clear, Judge Doyne did not rule that Wells Fargo had acted with bad faith; instead, he simply ruled that defendant had pled enough in connection with her claims related to the modification that her answer could not be stricken.

While this case presents a situation where a lender is alleged to have acted in bad faith after agreeing to entertain an application for a loan modification, the law in New Jersey is well settled that a lender cannot generally be deemed to have acted in bad faith when it seeks to enforce the terms of a note or mortgage as written. Stated differently, lenders cannot be barred from enforcing loan and mortgage documents merely because they seek to enforce their express contractual rights. Indeed, “a creditor's duty to act in good faith does not extend to foregoing its right to accelerate upon default or otherwise compromising its contractual rights in order to aid its debtor.” Glenfed Financial Corp. v. Penick Corp. For instance, in Creeger Brick & Building Supply, Inc. v. Mid-State Bank & Trust Co., -- a decision cited by the Appellate Division with approval in Glenfed -- a Pennsylvania appeals court held:

. . . a lending institution does not violate a separate duty of good faith by adhering to its agreement with the borrower or by enforcing its legal and contractual rights as a creditor. The duty of good faith imposed upon contracting parties does not compel a lender to surrender rights which it has been given by statute or by the terms of its contract. Similarly, it cannot be said that a lender has violated a duty of good faith merely because it has negotiated terms of a loan which are favorable to itself. As such, a lender generally is not liable for harm caused to a borrower by refusing to advance additional funds, release collateral, or assist in obtaining additional loans from third persons. A lending institution also is not required to delay attempts to recover from a guarantor after the principal debtor has defaulted.

In other words, if the defendant in Schultz was accusing Wells Fargo of bad faith simply because the lender was seeking to enforce its rights under the plain language of the relevant note and mortgage, the result would likely have been different.

It's Alive: the Highlands TDR Program Revived

2013-02-22T09:00:00-05:00

One of the longest and loudest complaints about the Highlands Act has been the inability of the State to compensate property owners for the lost value and development potential of their property. At its meeting last night, the Highland Council unveiled its latest efforts to address this issue, through the revival of its Transfer of Development Rights Program ("TDR Program"). The Highlands Act requires the Highland Council to implement a TDR Program as a method of compensating owners of property in the Highlands that has been rendered undevelopable as a result of the adoption and implementation of the Highlands Act.

TDR programs have had mixed success in other development contexts. The classic example is an intra-municipal TDR Program. These TDRs have had some success by allowing a municipality to control development within its borders. Certain neighborhoods within the municipality, called “Sending Areas,” are down-zoned to discourage future development or to prevent more dense development. The lost development potential of the property within the Sending Area is assigned a dollar value. Property owners are entitled to reimbursement for this lost value, and the TDR Program provides the mechanism that generates the funds for that reimbursement. The TDR Program creates a bank that converts the dollar value of the Sending Area development potential into credits, to be purchased by developers and applied toward development elsewhere in the municipality. The areas where the credits can be used, either to allow development or to allow development at a higher density, are referred to as “Receiving Areas.” By offering credits to allow for heightened densities, development rights, and other incentives, municipalities are able to encourage development in targeted areas.

The Highlands Council has struggled to implement the TDR model in the Highlands context. Unlike intra-municipal TDR programs, the Highlands Council not only failed to identify Receiving Areas within the same municipality as the Sending Areas, but also failed to establish any Receiving Areas within the entire Highlands Region. It struggled to identify incentives to entice municipalities outside the Highlands Region to agree to be Receiving Areas, and failed to successfully market its credits, called Highlands Development Credits, to developers.

The Highlands Council announced that it has made progress in its implementation of the Highlands TDR program, as it has now identified several urban municipalities in Bergen and Passaic County that are willing to serve as receiving zones to foster development and infrastructure improvements. The Highlands Council is still working to understand the economic impact of the revived TDR Program and to design incentives to attract developers to the program.

The Highland Council expects that developers utilizing the TDR Program will be required to pay an impact fee, projected to be approximately $15,000 per unit, in addition to the cost of purchasing the Highlands Development Credits.

Changing Tide In Foreclosure Litigation? Courts Taking Closer Look When Defendants Assert Lack Of Standing At Last Minute

2013-02-14T17:38:57-05:00

by: Peter J. Gallagher

In a series of recent decisions, New Jersey courts appear to be taking a stance against defendants raising, as a last-minute defense, that a party lacks standing to foreclose. This is good news for lenders and their assignees, who, prior to these decisions, faced the prospect of proceeding to final judgment of foreclosure, only to have a party appear at the last minute, allege a lack of standing to foreclose, and send the process back to square one.

The changing body of case law began with the Appellate Division’s opinion in Deutsche Bank Trust Company Americas v. Angeles, 428 N.J. Super. 315 (App. Div. 2013). In that case, defendant failed to defend the action or assert a standing issue until two years after default judgment was entered and more than three years after the complaint was filed. Id. at 316. Interestingly, the Appellate Division acknowledged that defendant raised a valid concern about plaintiff’s standing to foreclose, but nonetheless refused to vacate final judgment. In explaining its decision, the Appellate Division noted:

In foreclosure matters, equity must be applied to plaintiffs as well as defendants. Defendant did not raise the issue of standing until he had the advantage of many years of delay. Some delay stemmed from the New Jersey foreclosure system, other delay was afforded him through the equitable powers of the court, and additional delay resulted from plaintiff's attempt to amicably resolve the matter. Defendant at no time denied his responsibility for the debt incurred nor can he reasonably argue that [Plaintiff] is not the party legitimately in possession of the property. Rather, when all hope of further delay expired, after his home was sold and he was evicted, he made a last-ditch effort to relitigate the case. The trial court did not abuse its discretion in determining that defendant was not equitably entitled to vacate the judgment.

Id. at 320.

Again, in U.S. Bank National Association v. Rodriguez, 2013 WL 238179 (App. Div. Jan. 23, 2013), the Appellate Division refused to vacate final judgment and a subsequent sheriff’s sale where defendant asserted a lack of standing for the first time after final judgment had been entered and the sheriff’s sale completed. In that case, the Appellate Division characterized the last-minute defense as “too little and too late.” Id. at *3. The Appellate Division cited the Angeles decision favorably in holding that equitable considerations justified rejecting “defendant’s belated attempts to raise as a defense the plaintiff’s lack of standing.” Id.

Similarly, in HSBC Bank USA v. Gomez, 2013 WL 105303 (App. Div. Jan. 10, 2013), defendants filed a motion to vacate default judgment 16 months after default judgment was entered and one day before a scheduled sheriff’s sale. Among other things, defendants in that case argued that plaintiff lacked standing to foreclose because it did not demonstrate that it took possession of the underlying note and mortgage on or before the date the complaint was filed. Id. at *5. In support of this argument, defendants relied on two cases in which the Appellate Division had permitted defendants to raise standing as a defense to foreclosure complaints -- Deutsche Bank National Trust Company v. Mitchell, 422 N.J. Super. 214 (App. Div. 2011), and Wells Fargo Bank N.A. v. Ford, 418 N.J. Super. 592 (App. Div. 2011). However, the court distinguished those cases from the case before it on the basis that defendants in those cases had defended against the foreclosure and did not wait until final judgment was entered to do so:

As distinguished from the present case, however, in both Ford and Mitchell, the defendants timely filed answers and counterclaims in the foreclosure litigation, questioning the validity of the assignment, and contesting the plaintiff's standing to file the foreclosure complaint, and our reversals were of the trial courts’ grant of summary judgment. In other words, the defendants in the other cases actively defended the foreclosure litigation from the outset and did not sit on their rights.

Id. (emphasis added).

In TruCap Grantor Trust 2010-1 v. Serido, 2012 WL 6698715 (App. Div. Dec. 27, 2012), the Appellate Division, again relying upon Angeles, rejected a last minute motion to vacate final judgment. In that case, a residential homeowner raised the alleged lack of standing in a motion to vacate final judgment after not defending against the foreclosure complaint in the three years that it was pending. The court ruled that it would be inequitable to permit defendant to raise the defense at the last minute:

In determining that the final judgment should not be vacated after plaintiff waited three years to contest the foreclosure, the court explained, “[f]rom a pure point of equity, the defense was never raised. Had it been raised with an answer filed in the beginning, the Court may have permitted an amended pleading and may have said start all over again.”

Id. at *2. In addition, the Appellate Division concluded that plaintiff had standing to foreclose because it accepted plaintiff’s representation that it had possession of the note at the time it filed the foreclosure complaint. Id. at *1.

Finally, in Serido, the Appellate Division relied upon Deutsche Bank National Trust Company v. Russo, 429 N.J. Super. 91 (App. Div. 2012). In Russo, defendants failed to defend against a foreclosure complaint for a number of years, only to raise lack of standing in a motion to vacate final judgment. As with all of the cases cited above, the Appellate Division emphasized that defendants did not deny the validity of the note or their default. Id. at 97-98 (“Throughout the years of correspondence and orders, at no time have the defendants ever said you have the wrong parties, or we didn't borrow the money, or we didn't default. Basically, they've accepted the underlying aspect of the action over many, many months and years.”). Similarly, like Serido, the Appellate Division held that plaintiff in fact had standing because it had possession of the note at the time it filed its foreclosure complaint. Id. at 98. Nonetheless, even if this had not been the case, the Appellate Division held that defendants still would not have been permitted to avoid final judgment because of the alleged lack of standing:

[E]ven if plaintiff did not have the note or a valid assignment when it filed the complaint, but obtained either or both before entry of judgment, dismissal of the complaint would not have been an appropriate remedy here because of defendants’ unexcused, years-long delay in asserting that defense. Therefore, in this post-judgment context, lack of standing would not constitute a meritorious defense to the foreclosure complaint.

Id. at 101 (emphasis added).

Ultimately, Russo and this growing body of case law demonstrate that an alleged lack of standing is construed differently when raised at the last minute than when it is raised, as it should be, in the earliest stages of litigation. In addition, these cases suggest that the Appellate Division is now convinced that equity must flow in both directions, and that it is inequitable to allow a defendant to do nothing for years while a foreclosure complaint is pending, and then make a last-minute motion seeking to start the process over. Finally, it is important to note that each of these cases involved residential foreclosures, where courts are generally more likely to afford the defendant every benefit of the doubt. It seems likely that if this situation arises in a commercial foreclosure, New Jersey courts would follow the Appellate Division's lead and not allow a last-minute standing defense to vacate a final judgment of foreclosure.

Condemning Authority Not Required To Negotiate With Mortgagee

2013-02-07T17:39:00-05:00

by: Peter J. Gallagher

In a recent opinion, Borough of Merchantville v. Malik & Son, LLC, the New Jersey Appellate Division held that a condemning municipality was not required to negotiate with a party that had obtained a final judgment of foreclosure on the property that the municipality was looking to condemn. Under New Jersey law, before condemning real property, a condemning authority must, among other things, engage in bona fide pre-litigation negotiations with the party that "owns title of record to the property." Prior case law had made clear that this limitation meant that a condemning authority was not required to negotiate with a leaseholder or some other party that might have an "interest" in the property, but was instead required to negotiate only with the record title owner.

In Malik & Son, a lienholder argued that, by virtue of it having obtained final judgment of foreclosure on the property, it stepped into the shoes of the record title holder, and the municipality should have been negotiating with it instead of the record title holder. Specifically, the lienholder argued that it was not like a leasholder or even a "mere mortgage holder," but was instead the true "stakeholder and only party with a genuine interest in negotiating the sale of the property" because it had possession of the property, the right to sell it, a final judgment of foreclosure, and had scheduled a sheriff's sale by the date of the taking . Relying on the plain language of the relevant statutes, the trial court rejected this argument, and the Appllate Division affirmed its decision. The Appellate Division further explained that the municipality did not preclude the record title holder from discussing the negotiations with the lien holder, and that the lienholder -- as a "condemnee with a compensable interest," albeit not the record title holder -- could participate in subsequent valuation and allocation eminent domain proceedings.