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In previous blogs, I discussed the scope of Chapter 91, whether an owner-occupied property is subject to a Chapter 91 request, and the problems associated with requesting a reasonableness hearing when a Chapter 91 motion is granted. Now we move to what happens when the property owner mails its response to the Chapter 91 request, but the municipality denies receipt of the response?
 

The New Jersey Tax Court recently answered this question in a case where the court sided with the property owner and denied the municipality’s motion to dismiss a tax appeal.  See Cam Gar v. Verona Township, Docket No. 004838-2011, NJ Tax Court, Nov. 9, 2011 [link]. 
 

Verona Township sought to dismiss a tax appeal alleging the property owner failed to respond to a Chapter 91 request.  The property owner admitted it received the request, but argued it responded to the request in a timely manner by mailing the completed response to the assessor.  To support its position, the property owner offered the testimony of its bookkeeper, a 16-year employee whose job responsibilities include responding to Chapter 91 requests sent for the numerous properties managed by her employer. The bookkeeper went through in detail the procedures she implemented to handle Chapter 91 requests and produced a copy of the Chapter 91 response which had her hand written note “mailed w/rent roll 9/24/10.”  Although she admitted that she did not have a specific recollection of completing or mailing the form, “she testified that she would have followed all of the above procedures as to the handling of the Chapter 91 request.”
 

The municipality argued that without a specific recollection of completing and mailing the Chapter 91 response, the property owner cannot take advantage of the “presumption of receipt” arising under New Jersey case law. In addition, the municipality argued that vague testimony would lower the standard for other property owners who could merely argue “the check is in the mail” and avoid having its complaint dismissed. The court disagreed with the municipality and denied the motion.
 

It is important to note that the court’s decision turned on the credibility of the witness and the corroborating evidence produced at the hearing. It is not enough for a property owner to allege “I believed I mailed it”, or “since I responded every  year, I believe I responded this year”, without providing a thorough description of the procedures implemented to handle Chapter 91 requests and producing documentation that supports the testimony. Prudent property owners should adopt specific procedures for responding to Chapter 91 requests, including:

1. stamping the request with the date it is received;
2. having the information assembled immediately for a timely response;
3. mailing the response by certified mail; and
4. keeping a copy of the response with some record of when it was mailed

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As a general rule, a property owner must be current with its property taxes when it files a complaint with the New Jersey Tax Court to appeal a property tax assessment. If the taxes are not current, the municipality can move to dismiss the complaint.

Is there an exception to this rule? Yes, but it is very limited.

 

The New Jersey Tax Court can “relax the tax payment requirement and fix such terms of payments as the interests of justice may require.”  N.J.S.A. 54:51A-1(b).  Recently, the New Jersey Tax Court reviewed a case where a property owner asked the court to relax the payment requirement because the municipality was partially to blame for the financial problems arising from the development of the property being appealed.  Evans-Francis Estates Associates, LP v. Township of Cherry Hill, Docket No. 012386-2011, New Jersey Tax Court, Nov. 9, 2011.   The owner alleged the municipality’s reluctance to allow affordable housing units to be constructed on the property contributed to the financing obstacles.  However, the owner conceded that the collapse in the tax credit equity market contributed to delays in starting construction.

 

The Court applied the following three part test when reviewing the request to relax the tax payment requirement:

At a minimum, it would seem that such circumstances must be (1) beyond the control of the property owner, not self-imposed, (2) unatributted to poor judgment, a bad investment or a failed business venture, and (3) reasonably unforseable.
 

The Court found the property owner failed to meet any part of the test because the “obstacles encountered by the plaintiff in securing the approvals and financing necessary to construct its project are commonplace and reasonably foreseeable.”   The Court was not persuaded that the municipality’s conduct was a mitigating factor or that the severe economic times excuse the obligation to pay property taxes.
 

The case demonstrates the challenges facing property owners in these tough economic times when it comes to appealing a distressed property. To appeal, a property owner must find a way to be current through the first quarter of the year or risk having its appeal dismissed, good times or bad. 

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Timothy P. Duggan, Chair of Stark & Stark’s Real Estate Tax Appeals Group, was quoted in the April 24, 2011 Hudson Reporter article, Time will tell: Is now the best – or worst – time for a reval? The article discusses whether now is the best, or the worst, time for the city to conduct property revaluations.
 

Mr. Duggan states, “In reality, a reval can be done at any time, although the best time is when the [property] market is as stable as possible. You actually have the same problems in a rising market that you have in a falling market. That problem being that the comparable sales that you use [to determine the fair market value of each property] fluctuate quite a lot, and fluctuate quite a lot within a short period of time.”
 

You can read the full article online here.

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Timothy P. Duggan, Chair of Stark & Stark’s Real Estate Tax Appeals Group, was featured in the February 21, 2011 NJ Biz article, A taxing affair for towns as appeals mount.

The article discusses the recent rise of property tax appeals taking place in New Jersey as the steep drop in property values continues after the market crashed. Mr. Duggan states, “property owners should analyze their property to determine whether an appeal is appropriate. You can be properly assessed, and your neighbor under or over. The question is whether your property is properly assessed irrespective of what is going on in the market.”

You can read the full article online here.

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New Jersey property with environmental contamination still has value but under what circumstances may an appraiser take into account that contamination when preparing an appraisal to be used in a New Jersey tax appeal? The New Jersey Supreme Court answered this question in 1988 in the seminal case of Inmar Associates v. Carlstadt, 112 NJ 592 (1988),.  The Inmar court held that when a property is in use, “normal assessment techniques will remain an appropriate tool in the appraisal process” (ie. no reduction). However, when a property is no longer in use, the cost to cure the contamination may be taken into account by an appraiser, but not by a dollar-for-dollar deduction.

Recently, the Appellate Division of the Superior Court of New Jersey had an opportunity to define “in use” in the context of a tax appeal case.   Pan Chemical Corp. v. Hawthorne Borough, 404 N.J.Super. 401 (App.Div. 2009).  In Pan Chemical, the property owner moved its business to a new location, but kept a small crew on site to avoid triggering environmental clean-up obligations under the Industrial Site Remediation Act (“ISRA”).  The property owner argued that despite the fact that it did not trigger ISRA, it was still entitled to take into account the contamination when valuing the property.  The Appellate Division disagreed.

The Pan Chemical court concluded that a bright line test was necessary for determining when a property was “in use” for purposes of applying the Inmar standard in a tax appeal case. After reviewing various case law and statutes, the court adopted the definition of closing of an operation under ISRA which is “the cessation of operations resulting in at least a 90 percent reduction in the total value of the production output . .  or, for industrial establishments for which the product output is undefined, a 90 percent reduction in the number of employees.”  See N.J.S.A. 13:1K-8(1)).  Since the property owner was still operating at about a 15 percent level, it was not entitled to any reduction in the assessment based upon the contamination.

Although a bright line test is easy to apply, the result does not seem fair to a property owner whose property is being assessed significantly above its true value merely because ISRA has not been triggered.  However, this appears to be the law since the New Jersey Supreme Court refused to accept the case for review.  In addition, the New Jersey legislature is reviewing a new bill which may further complicate matters for property owners.

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It is getting to that time of the year where properties owners are thinking about appealing their property tax assessments for 2011.  A recent Tax Court decision (Prime Accounting Dept. v. Township of Carney) which hopefully will be reversed on appeal, stresses the importance of making certain that the person appealing their tax assessment is either the property owner or someone responsible for paying the taxes.
 

In Prime Accounting, the tax bill identified the owner of the property as “Prime Accounting Dept.”, which was a department of a prior tenant, “Prime Management Company”.  Most likely, the former tenant asked the tax assessor for their tax bills to be directed to the company’s accounting department. When the tax bill was changed naming the “owner” as Prime Management’s accounting department, no one thought there would be any problems. However, when an appeal of the property’s tax assessment was filed in 2009, Prime Management no longer was a tenant, yet it appears the tax bill for the property was never updated, which resulted in “Prime Accounting Dept.” being named as the plaintiff in the tax appeal. Standard practice for most tax appeal attorneys is to use the most recent tax bill as the source of the information to complete a County Tax Board Petition or Case Information Statement (for Tax Court cases).

When the issue was raised by the Tax Court, the plaintiff filed a motion seeking leave of court to amend the complaint to name the current tenant as the plaintiff (ie. change the plaintiff from Prime Accounting Dept. to Bocceli, LLC.).  The Tax Court denied the motion and dismissed the tax appeal.  The Tax Court held that it did not have jurisdiction since the original plaintiff was not a taxpayer and the amendment of the complaint could not correct this problem.  The decision has been appealed to the Appellate Division of the Superior Court of New Jersey.

It is important to make certain that the person or entity filing the appeal meets the definition of an aggrieved taxpayer (ie. owner, tenant paying taxes under a lease, etc.)  Although it may be more convenient and effective to have a tax bill sent to a particular person (ie. management company or department within a larger company), you need to make certain that the entity named in the petition or complaint is a “taxpayer”.

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My blog post dated January 28, 2008, provides an overview of the New Jersey Correction of Errors Statute and explains when a property owner is entitled to go back in time and get a refund due to an error made by a tax assessor.  On June 22, 2010, the Appellate Division of the Superior Court of New Jersey once again confirmed the legal principal that an error alone is not enough for relief - the correction must also be self-evident. (See case here)


From 1996 through 1998, a property owner received a 20% credit on the value of her land since the land was encumbered with a conservation easement.  When the municipality completed its revaluation in 1999, it did not consider conservation easements in reducing land values (an obvious error).  In 2005, the municipality performed a reassessment and all land values were substantially increased.  In 2005, the subject property’s assessment went from $222,000 to $479,000, again with no deduction for the conservation easement (the error continues!).


In 2008, the property owner noticed that she was not receiving a reduction or any type of credit for the conservation easement encumbering her property.  On November 26, 2008, she filed a complaint with the Tax Court seeking a reduction for the tax years 2005 through 2008, arguing the error was the type of error subject to correction under the Correction of Error Statute.


The Tax Court and the Appellate Division of the Superior Court of New Jersey disagreed. The Court acknowledged that the municipality’s failure to take the conservation easement into account when assessing the plaintiff’s property was an error in assessment.  However, the Tax Court continued that once the error was determined “it would have been necessary for the assessor to exercise her judgment as to how much that conservation easement would reduce [the land value of the property], that is clearly an error of judgment and not one of correctable error.”


This case underscores the requirement that not only must there be an error, but the correction itself must be “self-evident.”   The only true way to avoid this problem is to diligently review your tax assessments on an annual basis

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Right now all New Jersey homeowners are paying more attention to the amount they pay in property taxes, and many are exploring the possibility of retaining a tax appeal lawyer to help them reduce their property tax burden.  Below are some of the benefits that property owners receive when they hire a lawyer who practices in the tax appeal arena:

• Tax appeal lawyers have relationships with real estate appraisers that specialize in New Jersey tax appeals.
• Tax appeal lawyers also have relationships with many of the municipal tax assessors and tax revaluation companies which can help in tax reduction negotiations.
• Many tax appeal lawyers can represent clients before both the tax board and the New Jersey Tax Court.
• Experienced tax appeal lawyers can provide homeowners with honest assessments on difficult cases.

Stark & Stark's Tax Appeal group represents homeowners and commercial property owners throughout New Jersey in property tax appeals.  You can read more blog posts on New Jersey Tax Appeals here. 

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On May 28, 2008, I discussed the HJ Bailey Company v. Neptune case where the Appellate Division held that the appeal preclusion provision under Chapter 91 does not apply to non-income producing properties.  In the HJ Bailey case, the property in question was owner-occupied and did not generate any income over the preceding years.  Although the decision is sound, it must be read in conjunction with a recent New Jersey Tax Court case which held that the Chapter 91 appeal preclusion remedy may apply to certain types of non-income producing properties.  Specifically, the New Jersey Tax Court recently held that when an income producing property stops producing income, the taxpayer is obligated to respond to the Chapter 91 request and advise the local assessor that the property was no longer producing income.  Trinity Matzel, LLC v. City of East Orange (January 16, 2009).
   

Trinity Matzel owned an apartment building in East Orange which produced rental income for many years prior to 2006.  During 2006, the property owner performed major renovations at which time the tenants vacated the apartment building.  As a result, no income was received in 2006.  The following year, the tax assessor sent a Chapter 91 request to the property owner seeking annual income and expense information for the property.  The property owner did not respond to the Chapter 91 request.
   

The following year, the property owner filed a tax appeal seeking to appeal the assessment.  The municipality moved to dismiss the complaint arguing that the property owner failed to respond to the Chapter 91 request and, as a result, the complaint must be dismissed. [See New Jersey Law Journal for discussion on Chapter 91] The property owner, relying in part upon the HJ Bailey case, argued that since the property did not produce any income in 2006, it was not required to respond to the Chapter 91 request seeking information for that particular year.  The municipality, relying primarily upon an prior Appellate Division case captioned Alfred Conhagen v. Borough of South Plainfield, 16 N.J. Tax 470 (App. Div. 1997), argued that the complaint should be dismissed even though the property did not produce income in the year of question, because in prior years, the property did produce income and the property owner failed to notify the assessor of the change to a non-incoming producing property.
   

The Tax Court reviewed the Conhagen and HJ Bailey cases and found that the Conhagen case was more similar to the case at bar and dismissed the taxpayer’s complaint.  The Tax Court followed Conhagen’s holding that a property owner “had a mandatory duty to respond to the tax assessor and a duty to demonstrate that its property ceased to be income-producing as of May 1994.” (emphasis added).
   

The definition of “non-incoming producing” is not as clear as one would think.  If the property generated income at one time and subsequently becomes owner occupied or vacant, the property owner should respond to the Chapter 91 request and advise the assessor of the status of the property.   In light of the continued uncertainty in this area of the law, prudent property owners should respond to the annual Chapter 91 request even if the property does not generate any income.  The response is easy to complete and will provide you with protection in the event a motion to dismiss your complaint is filed.

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This blog continues the discussion on the draconian remedy under Chapter 91 of the New Jersey statutes which allows a municipality to dismiss a tax appeal in the event a property owner fails to respond to a request for income and expense information for a particular property.  We also provided several updates, including some recent decisions concerning the obligation of a property owner to respond to a Chapter 91 request when the property in question does not produce any income.  Despite the best efforts of property managers, sometimes the Chapter 91 request slips through the cracks and does not get answered.  When this happens and a municipality moves to dismiss the complaint, the property owner is left with one remedy: To request a reasonableness hearing pursuant to Ocean Pines Ltd. v. Borough of Point Pleasant, 112 N.J. 1 (1988).  Recently, the New Jersey Tax Court had an opportunity to review the reasonableness hearing standard for a large parcel of property located in Berkeley Heights, New Jersey.  See Lucent Technologies v. Berkeley Heights Township, (December2, 2008).
   

In the case in question, the property owner failed to respond to the Chapter 91 request and was limited to the remedy of a “reasonableness hearing.”  A reasonableness hearing is not a hearing to determine the value of the property, but rather a hearing to determine the “reasonableness of the assessment imposed by the assessor.”  The New Jersey Supreme Court has described such a hearing as:
 

 “The inquire will focus solely on whether the valuation could reasonably been arrived at in light of the data available to the assessor at the time of the valuation.  Encompassed within this inquiry are (1) the reasonableness of the underlying data used by the assessor and (2) the reasonableness of the methodology used by the assessor in arriving at the valuation.”
 

To no surprise, the property owner was not successful in challenging the reasonableness of the assessment.  The primary obstacle in a reasonableness hearing is not only its limited scope, but the legal problem arising from the “presumption of validity”  of the original assessment.   What this means in lay terms is that the data upon which the assessor relied and the assessor’s methodology are “presumed to have been reasonable.”  In light of the presumption, the property owner is required to overcome the presumption by producing evidence that is “definite, positive and certain in quality and quantity.”  Put another way, the property owner must establish that the “assessor acted arbitrary or capriciously in setting the assessments.” 
   

Although the property owner proved that the assessor’s methodology did not include a physical inspection of the subject property, did not include any effort to determine the fair market value of the property, and did not include any accumulation or thorough investigation or current data from the market place, the property owner nevertheless lost his case.  The Court found that the assessor was permitted to rely upon data appearing in the file produced or accumulated by his predecessor assessors without verifying or updating the data, and is entitled to rely upon information and recommendation from the municipal appraisal expert without inquiring as to the basis for the information and recommendations.
   

Although a reasonableness hearing is not impossible to win, the standard is extremely high.  Keep your eyes open for the annual Chapter 91 request and respond in a timely manner.

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