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Hamilton Township (Mercer County) is completing the revaluation of all properties in the Township and expects to advise property owners of their new assessments in January 2016. By now, each property owner should have been contacted by Professional Property Appraisals, which is the revaluation company hired by Hamilton Township to perform the revaluation. Once each property is inspected and appraised, the revaluation company will send a written notice to each property owner advising him or her of the new tax assessment. As mentioned, you should expect your notice in January 2016.

Additionally, you should expect sticker shock, too – but do not assume your taxes will increase. As a general rule, when a revaluation is completed, about one-third of owners see an increase in their tax bill, one-third a decrease, and one third almost no change at all. Also, do not apply the 2015 tax rate to your new assessment, because the tax rate will decrease as a result of the revaluation.

However, the new tax rate will not be final until the 2016 budget is finalized in the spring or summer of 2016, so any tax change will have to be based upon certain assumptions of what the new budget will look like.

Commercial property owners should take this time to assemble the information necessary to evaluate their new tax assessment, including:

  • Current rent roll;
  • Profit and loss statement for the subject property;
  • Vacancy rate for the past five years;
  • Any appraisals that may have been done for bank financing;
  • If the property was recently purchased, the contract, deed, closing statement, and listing agreement; and,
  • Survey or building plans to confirm the size of the property.

While this is not an exhaustive list, it should be able to get you well on your way.

Stark & Stark’s Tax Appeal Group can assist you in analyzing your new tax assessment, negotiating with the revaluation company and, if necessary, filing a tax appeal. For more information on Hamilton Township’s revaluation or tax appeals in general, please contact Stark & Stark or visit www.NJLawBlog.com.

On February 2, 2015, the New Jersey Law Journal published my article discussing the Bankruptcy Court decision of In re Washington, Case No. 14-14573 (Bankr. D.N.J. Nov. 5, 2014), where the Bankruptcy Court held that under New Jersey law, a mortgage holder is time-barred from foreclosing on a residential mortgage if the complaint is not filed within six years of the date the mortgage loan was accelerated by the mortgagee. On August 11, 2015, the United States District Court for the District of New Jersey reversed the decision, holding that the claim is time barred twenty years from the date of default. As a result, the mortgage is still valid and must be paid by the mortgagor. The District Court looked to several recent state court cases (all unpublished) and the plain meaning of the statute in question. In May 2015, two Chancery Division Judges (Morris County and Hudson County) did not follow the Washington decision. The Judges disagreed with the Bankruptcy Court’s interpretation of N.J.S.A. § 2A:50-56.1. The District Court followed the reasoning of the state court judges and found that the acceleration of a residential mortgage upon default does not accelerate the maturity date of the mortgage loan, since the maturity date is generally a specified date in the mortgage document (ie. date for last payment). Without a change in the maturity date, the District Court found that the twenty year statute of limitations was applicable to the facts before the Court. It is too early to tell if the debtor will appeal to the Third Circuit Court of Appeals. If an appeal is filed, we will monitor and report on the case.

What happens when the tax assessor mails a Chapter 91 request to the address maintained on the assessor’s public records, but the request is returned “unclaimed”? Is the assessor required to conduct any type of investigation to determine if the address is correct, or can the tax assessor rely solely on his or her records? Recently, the New Jersey Tax Court had an opportunity to review these issues in First Growth Plaza, LLC v. Borough of Raritan. The Tax Court ultimately found that a tax assessor may rely upon its public records in sending out Chapter 91 requests and an “unclaimed” envelope will not defeat a motion to dismiss a tax appeal when the tax assessor relied upon his or her tax list when addressing the envelope. The Tax Court held that a tax assessor is not required to investigate the address of an unclaimed certified mailing. On the contrary, the Tax Court found that it is incumbent on the property owner to ensure that any change in the owner’s address is properly recorded with the assessor. Property owners must be diligent in making certain that a tax assessor has a good address to mail notices and tax bills. Generally, the assessor will use the address set forth on a deed when updating a tax list after the sale of a parcel of property. That being said, this is not always the best address for the company. More importantly, if a company merges, changes management companies or accountants or relocates, it must be diligent and send a formal change of address notice to the tax assessor if tax bills and notices need to be sent to a new address. For any questions regarding this decision, it is recommended that you speak with experienced counsel.

In our July 23, 2015 blog, “Tax Appeals: The Silent Killer,” we suggested that property owners return their Chapter 91 response by certified mail or some other method that generates a receipt. The basis for this suggestion is several tax court decisions, including the case discussed in my December 5, 2011 blog and the recent case of 2 JFK Blvd v. Township of Franklin, docket no. 00578-2015 (Tax Court June 24, 2015).

In 2 JFK Blvd, the municipality moved to dismiss a tax appeal alleging the property owner did not respond to a Chapter 91 request. The property owner alleged that it did respond in a timely manner and produced a certification that set forth the date the response was mailed, the address where the response was mailed and enclosed a signed copy of the response. The tax assessor certified that he did not receive the response.

The Tax Court found both witnesses credible and each scenario plausible. The Tax Court also commented that both witnesses “kept records with respect to the question at issue,” which seems to have bolstered the credibility of the property owner and assessor. Based upon the record, the Tax Court denied the motion to dismiss the appeal since there was not “sufficient evidence of non-compliance” by the property owner.

Sending the response by certified mail, overnight mail or hand delivery, provides a property owner with proof of service of his or her response and can help avoid a costly battle at the outset of an appeal.

When valuing industrial, commercial or retail real estate, New Jersey tax assessors are required to value the “unencumbered fee simple interest” of the real estate. This concept often confuses property owners who capitalize the existing leases to show a property is overassessed. In layman terms, what does this all mean?

The cornerstone of New Jersey’s real property tax system is uniformity. Uniformity of assessment is achieved by assessing all property subject to tax at its full and fair value. By using the term “full” value, property is required to be assessed at its highest and best use, not its present use. For example, if a vacant lot is being used for parking but has a more valuable use (i.e., build a new office building), the property can be assessed at the higher value if the alternate use is legally permissible, physically possible, financially feasible and the most profitable use. These are the four criteria for determining the highest and best use of property.

For most industrial, commercial or retail real estate, the income approach to valuation is the most reliable and often given the most weight by tax court judges. To use the income approach, an appraiser must first determine the gross rent for the property at its highest and best use. For tax appeal purposes, the gross rents must be market rent or “economic rent,” which may differ from the actual rent generated from the property. Although actual rent may be a probative factor in determining economic rent, it is not controlling. For example, a lease may be above market because the landlord and tenant are related entities and structured the lease for business or tax reasons. A lease may be below market for the same reasons. However, if supported by other comparable leases, a lease for the property being appealed will often times be given great weight by the court.

The assessor or appraiser must obtain leases and other data from comparable properties in the surrounding area to make a final determination of economic rent. Although there is no hard and fast rule for the number of comparable leases required to opine to economic rent, a broad sampling of current leases is necessary.

Like every rule, there is an exception. The rent roll from a well managed apartment building can sometimes be capitalized to determine value. Going back many years, the New Jersey Supreme Court held “in the absence of convincing evidence to the contrary the current ongoing income scale of a large, well-managed apartment project like this, functioning as customary with leases of relatively short length, should be deemed prima facie to represent its fair rental value for purposes of the capitalized income method of property valuation.” Parkway Village Apartments Co. v. Township of Cranford, 108 N.J. 266, 528 A.2d 922 (N.J. 1987).

It is important to provide a copy of all leases to your appraiser at the outset of the appraisal process. However, your appraiser must also go out into the market and collect accurate information on comparable leases in order to avoid having his or her appraisal stricken by the court.

It is crucial for owners and other taxpayers of commercial, industrial, retail and other income producing properties to be on the lookout for the “Silent Killer” of tax appeals, commonly known as Chapter 91 requests. New Jersey law permits a municipality to request income and expense statements from owners of income producing properties on an annual basis (N.J.S.A. 54:4-34). The request (referred to as a Chapter 91 request) must be made in writing, served by certified mail, and must enclose a copy of the statute providing the authority to make the request. A property owner has 45 days to respond to the Chapter 91 request or risk having a subsequent tax appeal dismissed by the County Tax Board or New Jersey Tax Court. Property owners should be aware of the following:

  • Now is the time to be on the lookout for Chapter 91 requests since many tax assessors mail the requests during the summer. If tax bills are sent to a location outside of New Jersey (ie., accounts payable department located at corporate headquarters), it is advisable to make certain that the Chapter 91 request is sent to the person responsible for completing the request immediately.
  • Complete the entire form accurately. If a form is not complete or is misleading, the tax appeal may still be dismissed.
  • Although the statute appears to limit the request to income producing properties, that can be misleading. For example, an owner-occupied office building can be considered “income producing” in this situation. Also, if the property was income producing in a particular year, and vacant the following year for renovations, the property owner should still complete the form and advise the tax assessor that the property is now vacant. Also, inter-company leases or arrangements need to be disclosed. When in doubt, send in a response.
  • When responding to the Chapter 91 request, file the response to the tax assessor (not the township attorney) via certified or registered mail, overnight delivery service or in person so it is received within 45 days. There have been numerous cases where property owners allege they mailed their response, but the municipality denies receiving the response. In those circumstances, the Court is often required to hold an expensive plenary hearing to hear the testimony of the property owner and municipal assessor in order to decide whether the response was mailed. This is a costly way to start a tax appeal and can be avoided by obtaining a certified mail receipt.

While an assessor of any municipality can serve a Chapter 91 request, taxpayer vigilance is particularly key in municipalities undergoing a revaluation. In Central New Jersey, Hamilton Township, Plainsboro, Trenton and possibility Ewing Township are in the process of completing revaluations. If the revaluations are completed in 2015, virtually every tax assessment in these municipalities will change in 2016. In order to make certain you preserve your right to appeal your 2016 tax assessment, make certain you comply with any Chapter 91 requests in a timely manner. Failure to do so may result in a high tax bill in 2016, with no recourse. For more information on Chapter 91 requests or tax appeals, please contact Stark & Stark or visit www.NJLawBlog.com. Ch 91 requests

The New Jersey Uniform Commercial Code (the “UCC”) was amended, effective May 11, 2015, imposing new requirements on the filing of a financing statement to perfect a security interest in collateral within the scope of Article 9 of the UCC. The amendment provides that in order to be sufficient, a financing statement must state that the collateral listed in the financing statement falls within the scope of Article 9 of the UCC, pursuant to N.J.S.A. 12A:9-102 and 12A: 9-109. Furthermore, the name of the secured party listed on the financing statement must be the legal name of the secured party or the legal name of its representative.

While the purpose of the amendment is to prevent fraudulent filings, a failure to comply, even if there is no fraudulent intent, could result in an ineffective filing, a restraint of collection or enforcement, an alternative disposition of the collateral and in some instances statutory damages, attorneys fees and/or an injunction from filing any future liens, encumbrances or claims against the debtor (or any other persons specified by the court) without court approval. In addition, for some creditors, the filing office can refuse to file a financing statement that does not comply with the new requirements. The amendment is applicable to all financing statements filed on or after May 11, 2015.

If you have filed a financing statement since May 11th or intend to file a financing statement, you should consult an attorney to ensure your filing complies with the strict requirements set forth in the newly enacted amendment. If any financing statement filed on or after May 11th is not in compliance, an amendment should be filed immediately.

Recently, the New Jersey Tax Court had an opportunity to review the issue of whether site improvements on vacant lots are subject to assessment by the local tax assessor. Hovbros Cinnaminson Urban Renewal, LLC v. Township of Cinnaminson, Docket No. 016828-2001. The property in question is a 16.48 acre parcel of property approved for 205 residential condominium units in 12 buildings, all age restricted to residents 55 years and older. After the owner acquired title, it started construction and installed certain site improvements. As of the valuation date of October 1, 2012, the site improvements included a road, parking lots, curbing, utilities, a roadway and parking lot drainage system, detention basins, and partial sidewalks. However, because of economic conditions, the pace of construction slowed. As of the assessment date, only 181 lots of the original 205 remained (others sold as completed homes), all vacant.

The property owner’s appraiser opined to a value of $7,000 per unit and did not attribute any value to the site improvements. The appraiser testified that the improvements “had limited value in the market place.” To the contrary, the municipality’s appraiser opined that the vacant lots were worth $27,000 each, with the site improvements adding $13,800 per unit ($12,000 of construction costs plus 15% entrepreneurial profit), for a total market value of $41,000 (rounded).

In rendering its decision, the Court made the following findings of note:

  1. The Court rejected numerous comparable sales by both appraisers, finding some too remote in time and others not supported by data.
  2. The Court found that a 15% down-ward adjustment for the age restriction was appropriate.
  3. The Court applied a 5% per year adjustment for the declining market.
  4. Other adjustments were made (see page 4 of the opinion for a more detailed analysis).

The main issue in dispute was how to value the site improvements. The municipality’s expert looked at the information contained in the bond, costs from other residential developments and the Marshall Valuation Service Manuel to determine the estimated costs of the site improvements. In the end, the appraiser determined that the 5 construction costs were $12,089 per unit, and added $1,800 (15%) for entrepreneurial profit. After hearing testimony, the Court adopted the cost number, but reduced the entrepreneurial profit to 7.5%.

The case provides a good road map or how to value vacant land with site improvements. It is important to note that the site improvements were not separately assessed, but their added value was taken into account when assessing the land.

Recently, the Appellate Division of the Superior Court of New Jersey affirmed a Tax Court decision which enforced a settlement and determined the amount of interest to be paid on the refund after a successful tax appeal. Faber Brother, Inc. v. Borough of Paramus, a Municipal Corporation of the State of New Jersey, docket no. A-016828-2001 (May 28, 2014). This blog will focus on the portion of the decision that discusses the interest component of the refund.

A property owner filed a tax appeal and ultimately settled with the municipality for reduced assessments for tax years 2009, 2010 and 2011. The tax refund totaled $571,645.12. The issue in dispute was how to determine the interest on the refund.

The statute in question is N.J.S.A. 54:3-27.2 which requires a municipality to pay interest at the rate of 5% per annum on any excess taxes paid. The interest is to accrue from the date of payment. The controversy arose over the meaning of “date of payment”.

The property owner argued that since property taxes are paid quarterly, interest should be paid on any portion of the quarterly tax payment exceeding the amount of taxes that should have been paid for a particular quarter. For example, if a property owner paid $10,000 of taxes for the first quarter taxes ($40,000 per year) and the pro-rated reduction in the tax assessment results in a $5,000 tax obligation each quarter ($20,000 per year), the property owner argued interest should be paid on $5,000 commencing February 1 of that particular year, when the first quarter taxes were paid since he overpaid the first quarter by $5,000.

To the contrary, the municipality argued that the date of payment refers to those payments made after the taxpayer pays the total amount of taxes due for the entire year. For example, if the total taxes for a year were $40,000, and the reduction in the tax assessment resulted in a tax obligation of $20,000, the tax savings would be $20,000. However, since the original assessment of $40,000 is paid over four quarters (due February 1, May 1, August 1 and November 1), the taxpayer would not have “overpaid” taxes until the second quarter when he or she paid $20,000 for the particular tax year.

The Tax Court found for the municipality and held that interest on any over-payment runs from the point at which “tax payments exceed a taxpayer’s total liability for the year.” The Court found that a taxpayer “cannot overpay any property taxes until the tax liability for the year has been satisfied.”

In calculating interest, the parties will need to calculate the new tax liability based upon the reduced assessment. That amount must be compared to the taxes actually paid to determine at what point in the year the property owner satisfied its total tax obligation for the year. From that date forward, the property owner is entitled to interest.

Several years back I wrote an article for the American Bankruptcy Institute on informal proofs of claim. The ABI article, which can be found here, discussed how a pleading filed before a proof of claim bar date (i.e., certification filed in support of a stay relief motion) could save the day when a formal proof of claim is filed after the bar date. In a somewhat analogous case, the United States Bankruptcy Court for the District of New Jersey recently held that an adversary complaint objecting to the discharge of a debt filed after the objection deadline would relate back to the filing date of a motion objecting to the discharge filed before the deadline. DeMaria v Peters, Adversary Proceeding No. 14-01002 (MPK).

In Peters, a creditor obtained a judgment against an individual in state court. After engaging in post-judgment discovery, the defendant filed a petition under Chapter 7 of the United States Bankruptcy Code. When the petition was filed, the Bankruptcy Court set a deadline (the “Bar Date”) to object to the dischargeability of any debt.

One week before the Bar Date, the creditor filed a motion (“Objection Motion”) in the bankruptcy case seeking to hold the judgment non-dischargeable. Several days later and again prior to the Bar Date, the creditor filed a proof of claim with the United States Bankruptcy Court. However, a formal complaint objecting to the discharge of the debt was not filed until 13 days after the Bar Date.

The debtor filed a motion to dismiss the complaint since it was filed after the Bar Date. Although there was no dispute that the complaint was filed after the Bar Date, the United States Bankruptcy Court allowed the late filed complaint to “relate back” to the date the Objection Motion was filed. In making its decision, the United States Bankruptcy Court relied upon Third Circuit law which allows a court to toll the Bar Date when the equities warrant. Finding there was no prejudice to the debtor, the Bankruptcy Court equitably tolled the Bar Date, allowed the Complaint to be filed, and held that the filing date related back to the date the Objection Motion was filed.

Creditors should not rely heavily upon this decision. Although supported by Third Circuit law, bar dates in bankruptcy cases are generally strictly enforced. However, if a Bar Date is missed and a creditor wishes to file a complaint objecting to discharge, counsel should thoroughly review all pleadings filed in the case to determine whether or not the creditor placed the debtor on notice of the claim prior to the bar date. If so, the Peters decision may save the day.