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United Savings Bank v. State of New Jersey

360 N.J. Super. 520, 823 A.2d 873 (App. Div. 2003)

INVERSE CONDEMNATION—The statutory requirement that an inverse condemnation action be brought by a person having a recorded interest in the land is arguably invalid and possibly unconstitutional.

A bank foreclosed on a development project. The project, originally under the jurisdiction of the Army Corps of Engineers, “had received all necessary preliminary municipal permits for the planned development prior to the passage of the Freshwater Wetlands Protection Act (FWPA).” The bank sought an extension from the Corps for the prior approvals granted to its borrower, but jurisdiction had already been passed to the New Jersey Department of Environmental Protection (DEP). The DEP informed the bank “that it was no longer exempt from the FWPA and further development of the tract would require permits.” Then, an endangered plant specie was discovered, complicating matters for the bank. A director within the DEP wrote to a conservancy group suggesting that the conservancy might want to acquire the property saying, in part, that “[t]he project cannot proceed due to the extent of disturbance a housing project would have on the wetlands, which cover the majority of the site.” Later that year, the bank filed an application “seeking to build on four lots.” The DEP requested substantial additional information. The bank “provided some, but not all, of the requested information.” Later, the bank sought to expand its application to include additional acreage, but the DEP required additional notification to neighbors and a permit fee “or we will not be able to process this request.” The bank did not pay the additional fees and the amendment was not considered. Then, the original application was denied “for lack of adequate documentation showing that the proposed project minimized the impacts on wetlands.”

The property owner “sought a declaratory ruling from DEP that there [was] no set of circumstances upon which the department would issue an individual wetland permit for the filing of twelve acres of wetlands and the construction of thirty-five homes… .” DEP did not respond, but the Court was not disturbed because “issuance of a declaratory ruling by an agency is discretionary.” About six months later, in anticipation of its inverse condemnation action, the property owner formed a wholly-owned subsidiary and transferred its title to the subsidiary. At that time, “local property taxes were unpaid” and in rem foreclosure proceedings had begun. Also, for reasons that were not apparent from the record, the property owner’s original inverse condemnation complaint had been dismissed without prejudice. Then, a final judgment of foreclosure was entered on the property against the subsidiary. The property owner then refiled its claim for inverse condemnation. The lower court dismissed the complaint upon its determination that the property owner had failed to exhaust its administrative remedies. The Appellate Division agreed with that characterization, “although a more accurate factual statement would be that [the property owner] failed to initiate the formal administrative process.” When the property owner argued that the “doctrine of futility allowed it to truncate the administrative process and proceed directly to court litigation,” the Appellate Division disagreed. The so-called doctrine of futility cannot “come into play before an applicant for administrative permission even files the request, at least not where the agency has some discretion to grant that request.”

As a result of that determination, the Appellate Division did not address an additional reason relied upon by the lower court to deny relief to the property owner, i.e., “it was no longer the record title owner.” It believed that actions for taking of property without just compensation could be made only by a person with “a recorded interest in land.” When the property owner filed the second inverse condemnation action, the municipality had already foreclosed “and a final judgment of foreclosure had been entered, cutting off all right of redemption.” There was no question that “an inverse condemnation claim arises upon the taking and any subsequent change in title to the property does not vitiate the claim made by the title holder of record at the time of taking. Consequently, although the Appellate Division might have reversed the lower court had that been the only grounds for dismissal of the inverse condemnation claim, it had no need to do so in this case. Nonetheless, it pointed out that the statutory requirement “that an inverse condemnation action be brought by a person having a recorded interest in the land is arguably in conflict with [some] out-of-state decisions and the concomitant constitutional ramifications.”

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