Category: "News"

Judge Rules Time out for Condemnation Negotiations after Lakewood Foreclosure Fumble

June 14th, 2015

[Editor's Note: At 2:14 p.m. on June 14, at 7:48 p.m. on June 15 and at 5:52 p.m. on July 10, 2015, this story was edited for style, content and accuracy.]

No condemnation without negotiation.

That was the ruling of state Superior Court Judge Vincent J. Grasso, sitting in Toms River, following a Friday, May 29 condemnation hearing filed by Lakewood Township against four undersized parcels owned by an out-of-state resident seeking summary judgment to block the action, pending bona fide negotiations of a taking price as required by state law.

The township sought a ruling allowing it to condemn the properties first, and negotiate a taking price later.

Lakewood lost.

So did its taxpayers.

The fastest growing municipality in New Jersey soon could become its' most heavily taxed.

Lakewood property owners still reeling from news that their local school tax must cover the reimbursement cost of financial misappropriations approved in past years by the Lakewood Board of Education, may now have to shoulder increases in their municipal tax rate to correct defective titles in hundreds of undersized real estate parcels acquired by the township decades ago through reportedly faulted and incomplete in rem tax foreclosures.

The parcels are located on sites that include the parking lot of FirstEnergy Park, Lakewood public and non-public schools, the Lakewood Industrial Park and the Lakewood Corporate Park, where the town's most influential lobbyist is seeking to build.

A hundred years ago, that also was the goal of Home Guardian Company of New York, owned by the Smadbeck family, which invested in real estate throughout the tri-state area - including Lakewood.

According to www.spoonercentral.com, Warren and Arthur Smadbeck were known in the 1920s as the "Original Mastic Beach Boys" of Long Island, NY, as well as the "Henry Fords of Real Estate," because they made vacation land and home ownership affordable to the working class. The brothers followed in the footsteps of their father, Louis Smadbeck, who made his first real estate transaction in 1885, the year his wife, Jennie, gave birth to their first son, Warren. In 1887, the couple became parents to a second son, Arthur.

Two years after the death of Louis Smadbeck in 1911, the name of Home Guardian Company began appearing in Smadbeck transactions. By the 1920s, Warren, a dentist, and his younger brother, Arthur, started developing and marketing large estates "out in the sticks" that were located near railway stations.

In a 1920 classified ad, published in "The Brooklyn Citizen," the newspaper offered what it described as "a Startling Subscription Premium and a Rare Opportunity to BUY a Summer Paradise Homesite in Mastic Park at Pre-Boom Prices."

The newspaper informed its' readers that by subscribing for three months, they could purchase a lot in Mastic Park for a price no higher than $55.00, with $10.00 down and monthly payments of just $3.00.

"You don't have to dream of how Mastic Park will look someday," the ad told readers. "It is developed right now. All lots face on a finished road. The Forge River front is beautifully landscaped. There are several miles of wonderful waterfront park for the exclusive use of residents. A Post Office, Fire Department, Stores and the Mastic Station of the Long Island R.R. are on the property. There is an artistic, roomy Club House for the free use of lot owners. Mastic Park is located only 65 miles from New York with splendid train service. Title to these lots is guaranteed to us by the Suffolk Title & Guarantee Co."

Spooner Central reported that using newspaper subscriptions to sell land was a new concept at the time and may have been the Smadbecks' original idea. The name of "Brooklyn Citizen" Publisher John Frost appeared on many of the Mastic deeds. According to the Web site, Mastic Park was "on its' way" when the Smadbecks purchased the Lawrence Estate and started the town of Mastic Beach in 1926.

"Most every Smadbeck development during the 1920's-1950's was marketed as a vacation destination and situated near a lake or waterfront," Spooner Central told visitors to its' Web site.

In a newspaper advertisement published June 30, 1949, in the East Hampton Star of East Hampton, NY, reprinted on www.fultonhistory.com, the Smadbecks' Home Guardian Company of New York announced its' newest development, Redwood on the Waterfront.

"Right IN and PART OF the Incorporated Village of Sag Harbor, Long Island," the advertisement informed readers. "Only 10 minutes walk from the center of Main Street. The building sites are large, approximately 10,000 square feet each, a minimum of 3 lots. And you don't have to pay cash - Easy terms arranged."

Potential homebuyers could choose from a waterfront lot, with its' own private beach and dock, starting at $250.00 each, or a lot with water view and waterfront and beach privileges, starting at $125 each.

"REDWOOD will soon be added to more than 150 successful Home Guardian developments throughout the United States…some of which were sold in cooperation with leading New York newspapers " the advertisement also stated.

Not all Home Guardian development sites were a success.

In 1951, the company sold hundreds of Lakewood, NJ parcels it had owned since the 1920s to New York real estate investor Maximillian Hirshberg, a personal friend and investment partner of the Smadbecks.

Hirshberg never realized a profit from his Lakewood investment.

In 1958, Hirshberg died at age 59 after suffering a massive heart attack. According to his Last Will and Testament, probated in 1960, Hirshberg left his Lakewood properties to his widow, Florence Teri, who was thrice married during her lifetime and also known by her two other husbands' names as Florence Teri Steinau and Florence Teri Parker.

After her husband's death, Hirshberg's widow relocated to a new home in Ft. Lee, NJ, and later to Palm Beach County, Florida, where she died at the age of 80 on May 23, 2002.

According to Lakewood in rem foreclosure documents posted on the county clerk's Web site from the early 1970s to the mid-1980s, Hirshberg's widow did not pay the township all property taxes due on land she inherited from her late husband.

According to relatives, the township stopped sending her tax bills after her husband's death.

In 1971, the former Mrs. Hirshberg partnered with Stephen and Barbara Sonson of International Tracers of America to find her Lakewood properties and sell or lease them. The Sonsons were to receive half of any monies realized from their work over the 2-year life of the contract.

The Sonsons reportedly failed to recover a single Lakewood parcel by the expiration date of the contract in 1973.

Her heirs have continued to pursue her interest in her late husband's Lakewood investment properties.

In 2013 correspondence with Lakewood Mayor Aisik (Albert/Isaac) Akerman, California resident Kenneth Garzo identified himself as the nephew of Hirshberg's widow, whom he referred to as Aunt Flo. Garzo said her Lakewood properties were taken in violation of her Constitutional right to due process.

"In reviewing her records over the past decade, it has become clear that Aunt Flo possessed unencumbered title to over 200 properties in Lakewood Township, passed on to her after the death in 1958 of her second husband, Maximillian W. Hirshberg, a New York City land developer," Garzo told Akerman in July 14, 2013 correspondence. "Over the years, Lakewood Township appears to have usurped these properties bequeathed to her by means of foreclosure and other administrative actions without proper notification or due process."

According to Garzo, his Aunt Flo called township officials after first noticing she was not receiving her Lakewood property tax bills as early as 1962.

He said that Lakewood tax officials informed her the blocks and lots she owned no longer existed.

"The Town of Lakewood directly profited by absorbing Maximillian Hirshberg's property into newly created property maps that obscured and clouded his title, either by wholesale foreclosure proceedings for which neither my uncle nor his widow were ever notified, or by arbitrary usurpation of his title, making it impossible for him and his descendants to locate the property, pay taxes on the property, or even successfully to inquire about the property," Garzo told Akerman in 2013.

Garzo charged that Hirshberg's properties were absorbed by Lakewood officials into differently designated parcels with entirely different block and lot numbers, making them impossible to find on township maps and on township tax rolls.

He also said that many of Hirshberg's properties were bundled with other properties and sold by the township to individuals and corporations in order to facilitate municipal development of Lakewood industrial parks and to reap financial gain for the township.

For over half-a-century, Lakewood Township's in rem tax foreclosure department took legal action to acquire thousands of undersized parcels, referred to as wildcat lots, that were sold through newspaper subscription marketing programs. As Lakewood's appeal as a tourist destination ebbed during the first half of the 20th Century, so did its' appeal as a vacation home location. Lakewood officials saw a better future for township residents through redevelopment of the wildcat lots as affordable housing, schools and an industrial park that could attract businesses willing to employ township residents.

The township realized that vision through the collective efforts of municipalities across New Jersey.

In 1948, New Jersey League of Municipalities successfully lobbied for passage of legislation known as the In Rem Tax Foreclosure Act.

The Cherokee Group of Red Bank, NJ offered municipal tax assessors, tax collectors and financial officers legal counsel as to when and when not employ the law as a source of public revenue.

"The most common solution to municipal tax liens is to conduct an 'In Rem Tax Foreclosure'," the Cherokee Group Web site advises visitors. "If the municipality wants to take title to the properties, this is the appropriate course of action. If however the properties are potentially contaminated, or a property owner is in bankruptcy, or if the municipality has an unspoken policy against foreclosing voters, the tax liens may linger 'on the books' for years."

In seeking to redevelop the township to the benefit of its' citizens, Garzo indicated that local officials may have denied the same benefit to its' out-of-state investors.

"In reviewing Aunt Flo's extensive real estate files, there are no records of Lakewood notifying and justly compensating her for taking her properties," Garzo also told Akerman. "But there are numerous of Aunt Flo's notes questioning the apparent disappearance of her properties and expressing her frustration. Aunt Flo was meticulous in keeping records. Her frustration levels were handed down to me, as one of the beneficiaries and executors of her estate."

According to Garzo's 2013 correspondence with Akerman, his Aunt Flo began an expensive and exhaustive search for her Lakewood properties, beginning in 1965.

"(She) was continuously confronted with a non-responsive municipal bureaucracy," Garzo told Akerman.

Akerman's response was no different than other Lakewood officials his Aunt Flo had contacted over the decades regarding her late husband's properties. He reportedly ignored Garzo.

By Fall 2014, Garzo and Hirshberg's other relatives tried a different approach in asserting their claim for compensation of the late investor's Lakewood properties.

One year earlier, Robert Kairalla, brother of Hirshberg's widow and executor of her estate, designated his nephew, Kenneth Garzo, as his legal representative in the matter of the Lakewood properties.

In documents dated October 7, 2014, and posted on the Ocean County Clerk's Web site, Kairalla went a step further and signed an omnibus deed transferring ownership of all the Lakewood Hirshberg properties over to Garzo.

Less than one month after Garzo became the owner of the Lakewood Hirshberg properties, Lakewood real estate investors contacted him to negotiate a sale price for several of the parcels in order to clear any title defect to them.

In documents dated October 22, 2014, Rachel Newhouse LLC paid $50,000 for Block 440, lots 45 and 46, vacant wooded parcels reportedly assessed for a combined total of $900.00.

The location of Garzo's parcels determined their market value.

Government zoning also determines property market value.

Last year, Lakewood committeemen rezoned an area near Cross Street for dense development in order to bring in public sewer. The rezoning ordinances they adopted increased the value of properties located in the new zone, which Judge Grasso struck down in a ruling issued early this year. The court ruling was in response to a lawsuit filed by Drake Road residents Gedalie (George) Weinberger and his wife, Rachel.

The court ruling did not decrease property values in the area.

Instead of requiring development applicants to reapply for approval before the Lakewood Zoning Board of Adjustment, township officials permitted the Lakewood Planning Board to continue hearing applications in conformity with the ordinances Grasso struck down from the date they were adopted in 2014.

Lakewood Planning Board Attorney John J. Jackson III told NJ News & Views he had not received instructions from the township attorney to have development applicants that received planning board approvals under the defunct ordinances reapply for approval from the township's zoning board.

Lakewood Township Attorney Steven Secare did not respond for comment.

Garzo was less successful in negotiating a purchase price for the Hirshberg properties with Lakewood Township.

After ignoring Garzo's written communications in 2013 and 2014, the township responded to a title commitment sent by officials of Beth Medrash Govoha, an influential family-owned-and-operated Lakewood rabbinical college that also owns Cedarbridge Development LLC and Erez Holdings LLC.

The title commitment, which NJ News & Views obtained through the Open Public Records Act (OPRA), calls for the township to clear any title defect created by Garzo's posted deed by condemning parcels his uncle owned on a development site in Cedarbridge Corporate Park.

The site is the location of a 2-story office building approved for development. A bank and a hotel also are planned for construction.

In 2000, the township contracted with Cedarbridge Development LLC, the construction arm of Beth Medrash Govoha, to develop tax ratables in the township's 240-acre corporate park through the sale or lease of public land located there. Under the terms of the Option Agreement, Cedarbridge Development had seven years to fully develop the parcel with tax ratables, which committee members continued to extend beyond that time limit. Fifteen years later, with only the redevelopment project's infrastructure, landscaping and interior roads completed, the site more closely resembles a public park than a corporate park.

In 2013, Lakewood residents Yehuda Shain and Joseph DeFalco asked an Appellate Court to remand their 2010 lawsuit back to state Superior Court for a new ruling on their request to void the Option Agreement, based on the failure of Cedarbridge Development LLC to develop any tax ratables in the corporate park within the original 7-year time limit. The appeal is still pending.

Committeemen remained determined to work with Cedarbridge Holdings to redevelop the corporate park site, despite litigation seeking to void the 2000 Option Agreement.

At the May 21 meeting of the Lakewood Township Committee, members approved a resolution confirming "certain obligations" under the Cedarbridge Corporate Park Option Agreement. The resolution provides a plan of action for addressing possible title defects in parcels located on the corporate park redevelopment site.

In addition to Hirshberg's corporate park properties, Lakewood committeemen last year approved ordinances to condemn three parcels located on a site being developed by NJ Hand as affordable housing.

Many adult students enrolled at Beth Medrash Govoha live with their families in affordable housing units.

Although the township settled with all owners of the three NJ Hand affordable housing parcels at a total cost of $178,250, officials could not finalize a settlement price or an exchange of land with Garzo, who countered in legal papers that the township's appraised value of his property was based on a comparison with properties located in Jackson Township, not Lakewood Township.

According to documents included with Garzo's 2013 letter to Akerman, Hirshberg also owned property in Jackson that he bought from the Smadbecks, as well as in Lakewood.

Garzo insisted that Lakewood officials comply with state law governing condemnation settlement negotiations.

In his June 1, 2015 ruling, Judge Grasso agreed.

During a May 29 hearing in Toms River, which only a reporter for NJ News & Views attended as a member of the audience, Garzo represented himself pro se by telephone and attorney Pamela M. Snyder of Bathgate Wegener & Wolfe P.C. represented Lakewood Township.

"At the time the township instituted…condemnation actions on December 5, 2014, it did not name Kenneth Garzo as a party defendant who has now asserted that he has title to the subject properties by virtue of an omnibus deed recorded with the Ocean County Clerk on October 7, 2014," Grasso wrote in his June 1 opinion. "As a result, there were no bona fide negotiations between Garzo and the township prior to the institution of the condemnation action. At issue is whether the bona fide negotiation requirement pursuant to N.J.S.A. 20:3-6 may now be dispensed by the court under the circumstances and given the fact that Garzo has been and continues to be a resident of the State of California at the time these condemnation proceedings were instituted."

Grasso reported in his opinion that the township believed for the past 40 years it was the owner of the property through a 1973 foreclosure action.

"Upon its review of the recorded deeds through a title search, the Township discovered the names of different owners of the properties," Grasso wrote.

In response to an OPRA request filed by a reporter for NJ News & Views, township officials provided only a copy of the title commitment commissioned by Cedarbridge Holdings LLC and Erez Holdings LLC for Beth Medrash Govoha. Officials with the township clerk's office told the reporter that the document was provided by former township attorney Jan Wouters of Bathgate Wegener.

Wouters did not respond to the reporter's e-mail request for the title search, which was referenced in an April 30, 2015 committee ordinance calling for a land exchange with Garzo.

At the township committee's May 21 meeting, the ordinance was scheduled for second reading, but committeemen instead voted to carry it to their second meeting in June.

"The Township states that it did not engage in bona fide negotiations with any of them because they are out-of-state residents," Grasso continued in his opinion.

Grasso wrote that the township admitted "inadvertently" overlooking Garzo's omnibus deed of October 7, 2014, after filing a condemnation action by way of verified complaint and order to show cause.

One week earlier, Sam Levi of Starmark Appraisals finalized his appraisal of the Hirshberg parcels, now owned by Garzo.

Grasso noted that there was no recorded deed documenting transfer of the subject properties from the estate of Maximillian W. Hirshberg to Florence Teri Steinau and no ancillary probate proceedings filed pertaining to the properties owned by Hirshberg.

"The defendant property owners were not listed on the tax rolls for more than forty years and property taxes were not paid for more than forty years," Grasso wrote.

On March 10, 2015, Garzo reportedly filed motions for summary judgment. As a result, the township conducted a further deed review and recognized Garzo's property interest.

On April 7, 2015, Lakewood amended its complaints by listing Garzo with other heirs of his aunt's estate on its declarations of taking, as well as the State of New Jersey, to which Garzo may be required to pay an inheritance tax.

Grasso reported that the township attempted to negotiate a global settlement with Garzo, but those talks proved unsuccessful.

"A court is vested with discretion as to whether it dispenses with the necessity of (bona fide negotiations) under the listed circumstances," Grasso opined. "In other words, the owner's residence out of the State does not necessarily authorize the condemnor to dispense with the negotiation requirement."

Grasso wrote that the court declined to exercise its discretion and dispense with the negotiation requirement just because Garzo resided out of state.

He took the township to task for its failure to perform due diligence.

"Had the Township conducted a diligent and proper rundown of title search to ensure that no intervening interest to the subject properties occurred prior to the filing of the complaint on December 5, 2014, it would have discovered Garzo's omnibus deed recorded October 7, 2014," Grasso write in his opinion. "Due to the township's failure in verifying and confirming the owners of the properties...the Township failed to undertake the required bona fide negotiation with the record owners of the subject properties. Although Garzo resides in California, he has expressed his willingness to negotiate."

As a result, Grasso ruled he would not dispense with the negotiation requirement.

"The purpose of the statute is to is to encourage condemnor... to make acquisition through negotiation to save both the condemnor and condemnee the expenses and delay of...litigation," Grasso wrote. "Because the negotiation requirement is not dispensed with and the Township failed to negotiate with Garzo before filing the complaint, the court must dismiss the complaint (without prejudice)."

Grasso noted that if the parties could not reach a negotiated settlement for the Hirshberg properties, the township could re-file its' condemnation action against them.

In making his ruling, the judge referenced the township's April 30, 2015 ordinance to exchange public property for private property now owned by Garzo. In the ordinance, the township committee reported that over time, the township had sold 104 of the 262 Hirshberg lots to third parties. Lakewood Township currently lists 158 Hirshberg lots on its tax rolls that are public property used as parks and ball fields.

The ordinances also reported that after reviewing Garzo's claim, title experts advised the township that its title to the Hirshberg parcels, and those of third parties that now own them, may be faulty and incomplete. In addition, title experts and professionals said that a defense mounted in response to Garzo's claim would be very lengthy and expensive, involving years of litigation and hundreds of thousands of dollars in professional and expert fees with no guarantee of total success.

A reporter for NJ News & Views made an OPRA request for contracts, bills and invoices used to hire title professionals. The township responded that the requested documents did not exist.

The ordinance reported that the Lakewood Township Tax Assessor estimated the current fair market value of the Hirshberg lots in excess of $2 million.

The assessor also reportedly estimated the fair market value of township parcels Block 1101, Lot 1; Block 1102, Lot 1; Block 1105, Lot 1; and Block 1106, Lot 1, for which Garzo proposed exchanging the Hirshberg lots, to more or less also be worth $2 million, depending on the final zoning.

In a June 12 e-mail exchange with Lakewood Tax Assessor Edward Seeger, a reporter asked him if the township or its legal counsel had conferred with him regarding the Hirshberg properties now owned by Garzo.

Seeger said no.

If Garzo does not agree to exchange the Hirshberg property for township property, the township may not be able to afford the cost to buy them.

During the committee's June 11 meeting, members adopted an ordinance on second reading authorizing an emergency appropriation in the sum of $1,375,000, for the use of the local tax assessor to prepare and execute a revaluation of all public and private property in the township. The cost will be spread out over a five year period.

Committeemen also approved a resolution at the same meeting that authorized the sale of notes to finance the revaluation mandated by the state and county.

In a article published in The Tri-Town News on February 27, 2003, Committeeman Robert Singer, who continues to represent Lakewood as state Senator of the 30th Legislative District, discussed the township's 2006 revaluation.

"We knew it was coming," Singer reportedly said. "It happens if you have a large amount of new construction."

As Lakewood continues to grow, Lakewood property owners may realize a diminishing return on their investment in the state's fastest-growing municipality, whether or not they live there.

Local government is taking steps to reassure jittery investors.

At their May 21 meeting, committeemen adopted a resolution not to condemn property under eminent domain that is owned by real estate investor Laurie Leeds.

Leeds' properties, Block 1005, Lots 1 and 4; Block 1039, Lots 1 and 4; Block 1041, Lots 1, 2 and 3; Block 1042, Lots 6 and 9; Block 1044, Lot 10; Block 1045, Lot 4; Block 1050, Lot 1; and Block 1051.09, Lot 1, are vacant wooded parcels located adjacent to a large residential development approved for construction on the site of the former Chateau Grand banquet hall facing Route 9 north.

Committeemen pledged not to take her properties under the development's Coastal Area Facility Review Act (CAFRA) permit, which regulates the percentage of impervious coverage that can be built on the former Chateau Grand site.

As a result of government action, Leeds may not just recoup her original investment, but profit from it.

More than half-a-century ago, Hirshberg saw an opportunity to do the same.

New Jersey's fastest-growing municipality will have to stay on track in the future if it wants to continue to be the little investment engine that could, for residents and non-residents alike that invest in its' development.

In a June 8, 2015 post on www.njcondemnationlaw.com, entitled "Dropping the Ball: Another "Oops" Moment for the Condemnor," attorney Daniel Kim commented on Garzo's court victory against Lakewood Township a week earlier.

"Given what is at stake, one would expect the condemning authority to be more careful and diligent in their efforts in identifying the owners of the properties," Kim told the Web site's visitors. "The Township of Lakewood certainly fell short and now heads back to square one."