Don't Take Property, At Least Not Without Telling Someone!

Friday, June 1, 2007 - 01:00

A government taking by way of condemnation is one of the most controversial areas of the law from both a legal and social perspective. However, no matter what one's view on this hotly contested topic, one aspect is clear. Property owners must be given all of the requisite due process rights when a governmental entity, or redeveloper who has been given the power of condemnation by way of the Local Redevelopment and Housing Law, decides to obtain real property for a public purpose through eminent domain. Failure of the government or redeveloper to abide by the guidelines of the Eminent Domain Act, N.J.S.A. 20:3-1 et. seq., will bring about severe consequences. Nowhere is this more evident than in the recent decision by the New Jersey Appellate Division in the City of Passaic v. Shennet (February 2007).

In Shennet, the Plaintiff City of Passaic alleged that a parcel of private property owned by Defendant Charles Shennet was abandoned and decided to exercise its power of eminent domain through the City of Passaic Redevelopment Agency (the "City"). At first, this appears to be a straightforward condemnation action. However, the residential parcel located at 254 Summer Street (the "Property") in Passaic had been in Defendant's family since 1925 and had been conveyed directly to the Defendant by his aunt in 1986. During the same year as the conveyance, the house located on the Property burned down and the Property had remained vacant. Defendant continued to pay taxes on the Property in a timely fashion through the end of 2004. During this time, he had been approached on numerous occasions by a City councilman who wanted to purchase the Property. Defendant had continuously explained to the councilman that the Property was not for sale.

In March of 2004, the City filed a complaint to condemn the Property and sought an Order to Show Cause as to why commissioners should not be appointed to appraise the property. Defendant had no knowledge of the filing of the condemnation complaint because the City never attempted to serve him at the address where they had been sending him a tax bill for nearly twenty years. When asked by the court why Defendant was not served with the March 2004 complaint, the City replied that "its attempt to serve the owner by mail was returned by the post office with no forwarding address." On May 5, 2004, the trial court entered an order authorizing the City to acquire the Property and appointing commissioners to determine the property's value. In June of 2004, a default judgment was entered based on Defendant's failure to appear and title to the Property transferred to the City in consideration of the City depositing $14,730 into court which represented the fair market value of the Property. Subsequently, the City conveyed the Property to Wayne Asset Management ("WAM"), an entity owned by the same City councilman who sought to buy the Property from Defendant, for $60,000.

During the first quarter of 2005, when Defendant did not receive a tax bill for the first time in nearly twenty years, he contacted the City and was told that he no longer owned the Property. Defendant responded by filing a motion to (1) vacate and set aside the order authorizing the City to acquire the property; (2) vacate the judgment entered granting the City possession; and (3) vacate the commissioner's report dated August 2004 which valued the property at $14,730. In support of Defendant's motion, he argued that (1) he was never personally served with process; (2) the property was not abandoned based on the fact that he had continuously paid taxes; and (3) that $14,730 was not "just compensation" based on the immediate conveyance to WAM for $60,000.

Despite the City's admission that it had failed to comply with the service of process requirements under the Eminent Domain Act by not serving the Defendant personally, "the City maintained that the default judgment could not be vacated because the property had been sold to WAM, which had already built a two-family house on it." The City agreed that Defendant was entitled to a new commissioner's hearing to determine fair market value. Although the conduct of the City in this case was clearly egregious, on May 31, 2005, the trial court entered an order that agreed with the City's position and did not vacate the prior orders and default judgment which gave the City the ability to acquire title to the Property. On October 3, 2005, Defendant received the new commissioner's report that valued the Property at $78,000. Thereafter, Defendant filed an appeal challenging the May 31, 2005 order which upheld the City's right to take title to the property based on the same legal arguments utilized in support of Defendant's prior motion.

As noted by the Appellate Division, an appeal of a trial court order must be within forty-five days of the order. Here, Defendant appealed a May 31, 2005 order on November 14, 2005, five months after the order was entered. The Appellate Division held that the forty-five day period in this scenario should be relaxed "under the egregious circumstances of this case."

The Appellate Division went on to analyze the substance of Defendant's arguments which sought to overturn the City's acquisition of the Property. A decision, which would result in title to the Property and the two-family house built thereon, being transferred back to Defendant. First, the Appellate Division held that under N.J.S.A. 20:3-6, a "municipality must engage in bona fide negotiations with the prospective condemnee, which negotiations shall include an offer in writing by the condemnor to the prospective condemnee." The only instances where this requirement would not apply is where "the holder of title is unknown, resides out of the State, or for other good cause." Here, as highlighted by the Appellate Division, the City "had only to examine the tax rolls to determine the owner - and his correct address for service of an offer of purchase - but it failed to do so and it failed to provide the requisite notice of condemnation pursuant to N.J.S.A. 20:3-6."

A taking of one's property invokes the highest scrutiny when analyzing whether a property owner received the proper due process rights provided for under the law. Thus, as is the case under New Jersey law, compliance with the Eminent Domain Act "is jurisdictional, and failure of the condemnor to comply with [them] will result in dismissal of the complaint." The Appellate Division observed that the City:

(1) failed to provide the pre-condemnation notice required by N.J.S.A. 20:3-6;

(2) failed to even attempt personal service of the complaint and order to show cause;

(3) failed to comply with the Rules of Court for alternate service by mail and publication;

(4) failed to serve notice of the commissioners' hearings required by N.J.S.A. 20:3-12(c);

(5) alleged that the property was abandoned when taxes were fully paid; and

(6) entered into a contract to sell the property to a private entity owned by a former city council member - for four times the amount originally assessed by the commissioners as "just compensation."

Thus, the Appellate Division ruled, "[w]ithout due process, the default judgment is void." Therefore, a defendant "need not show excusable neglect, or even fraud or misrepresentation when the judgment is void for failure of process."

The Shennet case provides important guidance to both government entities and redevelopers who acquire the power of condemnation from a governmental entity through the Local Redevelopment and Housing Law. If a condemnor does not provide the requisite notice allotted under the statute and does not make all of the necessary diligent inquiries to serve notice in accordance with the New Jersey Rules of Court, the condemnation action is jurisdictionally defective and will be overturned. In Shennet , the Appellate Division overturned a condemnation judgment even after the subsequent purchaser constructed a two-family dwelling on the Property. Therefore, a condemnor will most likely never be able to get away with circumventing the due process requirements of providing notice under any set of circumstances. A governmental entity or redeveloper must proceed with caution and ensure that all measures are explored to provide notice. For example, what if a redeveloper has already constructed its project on a site and it is uncovered that adequate notice was not provided to the prior owner of the property? If the condemnee is successful in overturning the judgment, the project may have to be abandoned or at the very least construction at the project would have to be placed on hold. This outcome could wind up costing redevelopers or subsequent redevelopers significant amounts of time and money awaiting for the case to adjudicated.

Douglas J. Janacek is a Director and Jason R. Tuvel is an Associate in the Real Property and Environmental Department at the law firm of Gibbons P.C., which has offices in Newark, New York, Philadelphia and Trenton.

Please email the authors at djanacek@gibbonslaw.com or jtuvel@gibbonslaw.com with questions about this article.