The Urban Foreclosure Crisis, Eminent Domain and Blight Designations Under N.J. Stat. Ann. § 40A:12A-5: An Analytic Memo
Wan Cha
12 February 2014
Faced with a growing crisis of homeowner residents whose properties are “underwater” or already in foreclosure, many cities around the United States have explored the possibility of expediting mortgage principal write-downs through the extraordinary exercise of eminent domain. As of this writing, no city has actually followed through, and one, Richmond, California, has already been sued. Several cities in New Jersey are contemplating the use of redevelopment law as the only available local power to stabilize their tax bases and bring relief to homeowners. This legal memorandum explores the threshold question: Can the problem of foreclosure patterns satisfy the requirements of a “blight” designation under N.J. Stat. Ann. § 40A:12A-5? Several statutory criteria may apply. We analyze the most applicable here to determine whether independently or in the aggregate, the existence of mortgage security collective action problems, underwater mortgages, and properties at serious risk of foreclosure give rise to the conditions required for blight designation.
No New Jersey court has ever addressed the particular issue of foreclosure and blight designations, thus leaving no clear answer. Our analysis suggests that two of the eight disjunctive statutory criteria most closely address the factual problem—N. J. Stat. Ann. § 40A:12A-5(d), which concerns deteriorating physical conditions of property; and (e) which concerns problems made acute by diverse ownership.
The legislature probably did not anticipate using blight designation and eminent domain to remedy a mortgage collective action problem. A reviewing court, therefore, would likely hesitate to interpret loosely a statute that the New Jersey Supreme Court recently restricted in scope. Nevertheless, a comprehensive and sophisticated record of evidence to substantiate a designation of blight has almost always been well received, even in novel circumstances. As a policy matter, eminent domain is particularly suitable to preventing “ghetto” conditions.
Therefore, considering that New Jersey redevelopment law prioritizes remedying the general needs of broad geographic areas as opposed to isolated instances, and given the statute’s long-standing goal to eliminate neighborhood slum conditions, a court is more likely to uphold a blight designation if the targeted conditions must be remedied to further a broader redevelopment plan aimed at reducing the spread of ghetto neighborhood conditions.
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