Vacant Housing Registry is Illegal Investors Claim in Lawsuit
July 6, 2017
A group of investors are questioning the legality of Gloucester County’s vacant property registration program.
Two entities that purchase liens on tax delinquent properties are suing four towns and the company that administers the registry.
Two years ago, the county partnered with Community Champions Corp. to establish a database of abandoned and vacant properties in an effort to hold owners of properties — or mortgage holders — accountable for upkeep of those sites. Many communities have seen vacant homes fall into disrepair in the wake of the nation’s mortgage foreclosure crisis.
Florida-based Community Champions manages vacant property registries for communities around the country, including about 80 New Jersey municipalities.
Under the program, owners of these properties must register and pay a fee of a few hundred dollars. Community Champions, the county and participating municipalities split the proceeds.
Eighteen municipalities currently take part in the Gloucester County program and have adopted ordinances establishing the registry program in their communities. Deptford, Glassboro, Monroe and Paulsboro are named in the suit.
The plaintiffs, operating under the names Empire TF4 Jersey Holdings, LLC, Empire TF6 New Jersey Holdings, LLC, and Empire TF5 Jersey Holdings, all of the same New York City address, and Chickadee Investments, in Brick, argue that the program is unconstitutional, illegally targets owners working to get properties back on the tax rolls and charges unreasonable fees.
Is the program legal?
These investors buy municipal tax sale certificates, which are the liens on tax delinquent properties. These certificates can earn as much as 18 percent interest. When holders of these certificates foreclose on a property in order to take ownership, towns with vacant property registries have required them to pay registration fees so that they can sell the properties to a new owner, the plaintiffs state.
In order to sell a property in Glassboro, one of the plaintiffs had to pay the borough $2,000 in registration fees. Similar fees were required to sell properties in Paulsboro, Deptford and Monroe.
“We don’t think they have the legal authority to register tax sale foreclosures,” said the plaintiffs’ attorney, Keith A. Bonchi.
State tax sale law already lays out what his clients must do when purchasing tax sale certificates and foreclosing on properties, including how much an investor must pay the municipality, Bonchi said.
He also argues the ordinances are unconstitutional.
An Assembly bill was introduced in 2013 that laid out guidelines for municipal vacant property registration programs.
“Assembly Bill No. 4031 was never enacted into law and the Legislature in the State of New Jersey has never enacted a statute authorizing the registration of vacant/abandoned properties,” the suit states. “In New Jersey, municipalities are the creature of statutes and can only exercise those powers expressly granted by the Legislature.”
Community Champions officials had no comment on the pending litigation.
The New Jersey League of Municipalities has stated that municipalities have the power to create vacant property registries under the New Jersey Constitution and that this power is supported by case law.
Apart from the legality question, Bonchi argued that those who purchase tax liens on properties are supporting the goal of getting vacant homes occupied, cleaned up and back on the tax rolls.
Are fees unreasonable?
Bonchi also questioned the value of the registry program, saying that the information about property owners and lien holders is readily available to municipal officials concerned about enforcing property upkeep. He also said the fees are baseless.
“These ordinances are designed as a back door attempt to raise revenue for municipalities and the amount of the fees have no reasonable relationship to the cost of keeping a register of vacant property even if same were allowed by state law,” the suit states.
The plaintiffs want the ordinances declared unconstitutional, they seek an injunction barring towns from enforcing the ordinances on properties obtained through tax foreclosures and they want Community Champions blocked from collecting registration fees.
Local officials have praised the program for providing a point of contact when issues arise with a particular property. Vacant property registration programs are popping up around the country.
While Deptford Mayor Paul Medany hasn’t seen the lawsuit yet, he is pleased with the program. More properties are getting cleaned up and owners are being held accountable, he said.
Many towns have faced similar challenges, with homeowners skipping town because they cannot keep up with mortgage payments and leaving a decaying property behind. In additional to overgrown grass and infestations, the properties often become magnets for vandalism, drug dealing and squatters.
“We’re making really good progress in Deptford,” Medany said. “We’re getting a lot of properties off the books. I’m happy with the program.”
Goldenberg, Mackler, Sayegh, Mintz, Pfeffer, Bonchi & Gill (Amended Complaint In Lieu of Prerogative Writ for Declaratory Judgment pdf)