The New Jersey Appellate Division recently held “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.” In Borough of Merchantville v. Malik & Son, LLC, a lien holder appealed from a trial court’s order permitting the Borough of Merchantville to exercise its power of eminent domain. New Jersey requires a condemning authority to engage in “bona fide pre-litigation negotiations” prior to condemning property. The court found the Borough did not have a duty to engage in bona fide negotiations with the lienholder and satisfied its obligation to engage in such negotiations with only the property owner.
The Borough made a good faith offer to the property owner and, after the property owner rejected the offer, filed a verified complaint and declaration of taking. The lienholder claimed it was "the real party in interest" and the Borough should have negotiated with it regarding the proposed acquisition. The lienholder argued that, “based on the unique circumstances, it essentially stepped into the shoes of the property owner, and the [condemnor] 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.”
The Appellate Division stated that the trial court “properly rejected this argument based on the language and spirit of the Act, as well as the case law.” The Court noted the distinction between the general definition of "condemnee" in the eminent domain statute, i.e. "the owner of an interest in the private property being condemned for a public purpose under the power of eminent domain[,]" N.J.S.A. 20:3-2(c), and the specific section, N.J.S.A. 20:3-6, mandating that the bona fide pre-litigation negotiations are to be undertaken with the condemnee "who holds title of record to the property." Id. at 70. The Court also stated that it was “satisfied that the rights of all other condemnees with a compensable interest are better protected by allowing them to participate later” when just compensation is determined and allocated.