Opinion
Docket No. 018029-2009
08-15-2012
Rosenberg v. City of Newark
JUDGE
Leonard F. Rosenberg, self-represented
28 Scarsdale Drive
Livingston, New Jersey 07039
Joseph Sherman, Esq.
Nowell Amoroso Klein Bierman
155 Polifly Road
Hackensack, New Jersey 07601
Dear Mr. Rosenberg and Mr. Sherman:
This letter constitutes the court's decision after trial of this matter where plaintiff timely appealed the judgment of the Essex County Board of Taxation ("Board") affirming the tax assessment on property owned by plaintiff. The court affirms the assessment for the reasons fully set forth below.
Plaintiff sought a reduction in the assessment based on the condition of the subject property. He did not rely on an expert at trial but testified on his own behalf. Plaintiff described the condition of the subject property and testified about three Newark properties which he considered to be comparable to the subject, all of which were sold in close proximity to the valuation date. Plaintiff had not inspected the interior of any the comparable properties but he adjusted the sales to reflect characteristics which he believed differed from those of the subject property. He concluded that the fair market value of the subject property on October 1, 2008 was $122,000 based on the use of the three comparable sales.
Judge Raymond Hayser of the Tax Court was previously assigned the matter and entered a Case Management Order ("CMO"), dated August 9, 2010 and thereby established a deadline for the production of expert reports. When defendant failed to timely serve a report plaintiff moved to bar production pursuant to the CMO. Defendant did not oppose the motion but rather admitted its failure to timely provide an appraisal report or comparable sales to plaintiff. This court entered an Order barring defendant from presenting expert testimony in defense of the Complaint.
Plaintiff is not a licensed real estate appraiser. He did testify to his experience as a real estate broker and agent licensed for thirty years. A graduate of the Real Estate Institute he also took real estate courses at a county Community College. He is the founder and President of West Hudson Management which owns more than 100 rental units and plaintiff has been appointed to the Hotel and Motel Safety Board by two New Jersey Governors. His education also includes a degree from Queens College and an MBA from Cornell. At trial plaintiff did not seek to be, nor was he, qualified as an expert.
The court finds that the plaintiff did not provide reliable evidence of value sufficient to overcome the presumption of validity which the assessment carries. Particularly, the circumstances surrounding the sales of comparable numbers one and two lead the court to conclude that they were not the result of market transactions. As to comparable three, plaintiff failed to provide evidence that the home was similar to the subject to afford a comparison. The judgment of the Board is affirmed.
Facts
Based on testimony and documents admitted at trial the court finds the following facts. Plaintiff owns the rental property designated as Block 508, Lot 62 on the tax map of Newark, and commonly known as 147 Garside Street, Newark (the "subject property") assessed for tax year 2009 as follows:
+----------------------+ ¦Land ¦$ 67,600¦ +-------------+--------¦ ¦Improvements ¦$ 67,700¦ +-------------+--------¦ ¦Total ¦$135,300¦ +----------------------+
The Chapter 123 common level range for Newark was 57.84% for the 2009 tax year, with a lower limit of 49.16 and an upper limit of 66.51. The equalized value of the property is $233,921 ($135,300/.5784 = $233,921).
The subject property
The subject property, lot size 25' x 112', contains a small two-story, two-family home. The court is unaware of the size of the improvement since the total gross living area of the property was not provided. Built between 70 and 80 years ago, each of the two living units contains two bedrooms, a bath, living room and a kitchen. The rooms are small, and there is little or no closet space. The home has an unfinished basement. Plaintiff notes that in 2008 there were two tenants, but neither tenant was paying rent and he termed the individuals as "squatters."
The first floor unit is in fair to good condition, and the bathroom contains older fixtures and crumbling plastic around the tub. The second floor has not been well maintained which plaintiff attributes in part to vandalism resulting in damage to two interior doors, two windows and a bathroom medicine cabinet. Of the two located at the property, only the gas hot water furnace servicing the first floor is functional. Photographs depict cracked and peeling paint on some of the building common areas. The basement contains some garbage and animal excrement from the dogs owned by the first floor squatter. As to the condition of the exterior, the front porch, soffit and rear overhang need repair. A photograph produced by plaintiff depicts the front of the home which appears in good condition with no visible damage. The front porch and soffit conditions described by plaintiff are not visible in the photograph but the court accepts plaintiff's testimony that some damage requiring repair exists there.
Plaintiff produced ten photographs of the subject property which depict interior damage described, the basement condition, an exterior view of the subject, a home located two houses away from the subject with boarded windows, and exterior photos of the comparable properties. Defendant objected to the subject photographs on relevance grounds as not reflective of conditions that are probative of value; that the photographs are prejudicial because plaintiff did not provide photographs of the interiors of the comparable properties; and, because plaintiff failed to provide the photographs to defendant prior to the trial date. In response plaintiff explained that an offer to view the property had been extended to the City but was refused. Defendant argued that the selective use of the photograph showing a home with boarded windows without providing proof of the condition of other surrounding homes is prejudicial since it fails to provide a fair depiction of the neighborhood. The court admitted the photos into evidence over defendant's objections.
Comparable sales
Plaintiff testified to his belief that all three comparable sales on which he relied were the result of market transactions. He offered three reasons: the properties were sold by licensed realtors through multiple listing services having been exposed to the market for a reasonable time period; he reviewed and confirmed that they were usable both through the use of a county tax board website and by a review of the SR-1A form for each property; and his testimony was based on his experience as a buyer and seller of properties. Plaintiff did not consult with anyone related to the transfers to verify the circumstances of the sales in an effort to learn whether they involved related parties, banks or resulted from arms-length negotiations.
Form SR-1A is prepared and utilized by the taxing jurisdiction to report transfers of real estate and the assessed value of properties sold in the jurisdiction to the State. In the office of the Director of the Division of Taxation the information is reviewed, screened and investigated for use in constructing the table of equalization. N.J.S.A. 54:1-35.1. See Real Property Appraisal Manual of New Jersey Assessors, I-15 (3rd ed. 2002).
As to the condition of the comparables, he testified to their condition and qualified them all as superior to the subject (as being in good or excellent condition) but had not viewed the interior of any of the comparable properties.
Comparable number one: 284 Parker Street
This two-story two-family home was built approximately 50 years ago. The property was listed for 53 days and sold through Exchange Realty for $150,000 on October 17, 2008 (after the valuation date). The lot size is 25' x 100'. The property is located one-half mile from the subject in north Newark, north of Bloomfield Avenue, a different neighborhood than the subject. It contains four bedrooms, two baths, and an unfinished basement. The actual number and type of room in each unit was not provided and there was no evidence of the gross living area. Plaintiff relied on an MLS listing which was not provided at trial and he qualified the condition of the home as good, however he had not inspected the interior. The home has a brick exterior of good construction quality. Similar to the subject, there is no garage, deck, or patio. Photographs of the exterior of the home depict a small, attractive, neatly kept home while other pictures show an attractive neighborhood of well-kept homes.
Plaintiff testified that the comparable property was located in an area more desirable than the location of the subject property and adjusted the sale downward -$15,000 for location. He also made a negative adjustment of -$10,000 for construction quality. The total net adjustment was -$25,000. The adjustment grid reflected an adjusted sale price of $125,000.
Thomas Small, the Newark Chief Tax Assessor produced a Notice of Lis Pendens/Foreclosure filed on the property. The document was dated August 21, 2008, approximately two months prior to the sale date of the comparable. Plaintiff was unaware that a lis pendens had been filed on the property. The notice related to a pending foreclosure action instituted in the Chancery Division in Essex County Superior Court on a tax sale certificate held by JNH Funding Corp. As indicated on the tax sale certificate the property was assessed to Ricardo and Maria Bombino who are the named defendants on the lis pendens. According to plaintiff, Bombino is the named seller of the comparable property. Mr. Small considered the sale as non-usable since the lis pendens signifies that the grantor was under financial pressure when he entered into the sales agreement.
Comparable number two, 227 5th Street
This two-story two-family home sold for $170,000 on November 6, 2008, approximately five weeks post-assessment. Listed by Century 21 Gemini, it was on the market for 103 days. It is located 0.8 miles from the subject. The lot size is 25' x 100'. The house is approximately ten years old and contains a total of twelve rooms instead of eight, with two more bedrooms and two more baths than the subject. The actual number and type of room in each unit was not provided and there was no evidence of the gross living area. Plaintiff testified that the house was larger than the subject. Plaintiff described the house as being in excellent condition although he did not view the interior of the home. The exterior photographs produced by plaintiff depict an attractive neighborhood of well-kept homes.
Plaintiff made downward adjustments to the comparable as follows: -$10,000 for (excellent) construction quality; -$20,000 for condition; for room count -$15,000; for functional utility -$10,000; for heating/cooling -$2,500. He made an upward adjustment of +$10,000 since there was no basement in the home. Plaintiff adjusted this sale downward by a total net adjustment of -$47,500 and he adjusted the sale price to $122,500.
Mr. Small testified that he located evidence of three recent sales of the comparable property all within less than a year of the valuation date. The sales history is as follows: the property was sold on February 7, 2008 for $100. It was sold again on November 6, 2008 for $170,000, by U.S. Bank N.A. and plaintiff relied on the November bank sale in support of the appeal. The property sold a third time approximately five months after the bank sale (and the assessment date), on March 16, 2009 for $260,000. The witness also provided a document from the assessor's office that confirmed the three sales prices and the applicable sales dates. Comparable number three, 578-580 15th Avenue
This two-story two-family home sold for $185,000 on August 7, 2008 by ERE Cool City Realty and was marketed for twenty-seven days. The comparable home is ten years old. Located approximately two miles from the subject in the north ward and south of South Orange Avenue, a different neighborhood than the subject, the property is comprised of a 40' x 100' lot. The house contains eleven total rooms, five bedrooms and three bathrooms, one more bedroom and bath than the subject. The actual number and type of room in each unit was not provided and there was no evidence of the gross living area. Plaintiff described the house as being in excellent condition, although he did not view the interior of the home. Plaintiff's photographs support the testimony that the comparable home is a newer house and larger than the subject.
The subject lot totals 2,600 square feet, and the comparable lot size is 4,000 square feet. Plaintiff claimed that the comparable property was in a similar demographic area to the subject and did not make any adjustments for location. Thomas Small testified that the comparable was located in a more desirable area than the subject. The photographs produced by plaintiff depict homes adjacent to the comparable, none of which are boarded or appear to be abandoned, which differs from the area depicted in the photographs of the subject neighborhood.
Plaintiff made the following downward adjustments: construction quality -$10,000; condition -$20,000; room count/type -$12,000; functional utility -$10,000; driveway -$15,000; lot size -$5,000; and an upward adjustment because the comparable had no basement +$10,000. The total net adjustment was downward -$62,000 which reflected an adjusted sales price of $123,000.
Conclusions of Law
"Original assessments and judgments of county boards of taxation are entitled to a presumption of validity." MSGW Real Estate Fund, LLC v. Borough of Mountain Lakes, 18 N.J. Tax 364, 373 (Tax 1998). The burden is on the appealing party to overcome the presumption and prove that the assessment is erroneous. "The presumption in favor of the taxing authority can be rebutted only by cogent evidence [ ]. The strength of the presumption is exemplified by the nature of the evidence that is required to overcome it. That evidence must be 'definite, positive and certain in quality and quantity to overcome the presumption.'" Ibid. (quoting Pantasote Co. v. City of Passaic, 100 N.J. 408, 413 (1985) (citations omitted)). See also Little Egg Harbor Twp. v. Bonsangue, 316 N.J. Super. 271, 285-86 (App. Div. 1998) (citation omitted) ("The presumption of correctness of a county board's tax assessment judgment stands, until sufficient competent evidence to the contrary is adduced.")
The presumption of correctness arises from the view "that in tax matters it is to be presumed that governmental authority has been exercised correctly and in accordance with law." Pantasote, supra, 100 N.J. at 413 (citing Powder Mill, I Assocs. v. Township of Hamilton, 3 N.J. Tax 439 (Tax 1981)); see also Byram Twp. v. Western World, Inc., 111 N.J. 222 (1988) and City of Atlantic City v. Ace Gaming, LLC, 23 N.J. Tax 70, 98 (Tax 2006). The court must accept as true the proofs of the party challenging the assessment and accord that party all legitimate favorable inferences from that evidence. MSGW Real Estate Fund, LLC, supra, 18 N.J Tax at 376 (citing Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 535 (1995)).
In order to overcome the presumption, the evidence "must be 'sufficient to determine the value of the property under appeal, thereby establishing the existence of a debatable question as to the correctness of the assessment.'" West Colonial Enters., LLC v. City of East Orange, 20 N.J. Tax 576, 579 (Tax 2003)(quoting Lenal Props., Inc. v. City of Jersey City, 18 N.J. Tax 405, 408 (Tax 1999), aff'd, 18 N.J. Tax 658 (App. Div.), certif. denied, 165 N.J. 488 (2000)). Only after the presumption is overcome with sufficient evidence at the close of trial must the court "appraise the testimony, make a determination of true value and fix the assessment." Rodwood Gardens, Inc. v. City of Summit, 188 N.J. Super. 34, 38-39 (App. Div. 1982) (citations omitted). If the court determines that sufficient evidence to overcome the presumption has not been produced, the assessment shall be affirmed and the court need not proceed to making an independent determination of value. Ford Motor Co. v. Township of Edison, 127 N.J. 290, 312 (1992); Global Terminal & Container Serv. v. City of Jersey City, 15 N.J. Tax 698, 703-704 (App. Div. 1996).
The plaintiff relied on the comparable sales approach. According to the Appraisal Institute, The Appraisal of Real Estate, 300 (13th ed. 2008), "The sales comparison approach is applicable to all types of real property interests when there are sufficient recent, reliable transactions to indicate value patterns or trends in the market. For property types that are bought and sold regularly, the sales comparison approach often provides a supportable indication of market value." The sales approach is an appropriate method to determine the value of a residential property where, as indicated, "sufficient recent, reliable transactions" exist to provide a "supportable indication of market value" through "value patterns or trends in the market." Ibid. See also Brown v. Borough of Glen Rock, 19 N.J. Tax 366 (App. Div. 2001).
"Market value" is defined as:
The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.
[The Appraisal of Real Estate, supra, at 23]
Defendant provided evidence that sales comparable one and two were not the result of an arms-length transaction between a willing buyer and seller, but rather were distress sales and therefore not reliable indicators of value. Plaintiff submits that the court should accept the sales as usable since the property transfers were not marked as non-usable on the SR-1A forms. According to Mr. Small, information on the SR-1A form is transferred from the deed. The form is used by the Director of the Division of Taxation in compiling the Director's ratio, and sometimes during revaluation or reassessment process. Mr. Small explained that as viewed by an assessor, a usable sale for valuation purposes requires investigation into other considerations such as the terms of financing, the chain of title, and factors not considered when preparing the SR-1A form. Even if the SR-1A forms for the comparable properties did not list a non-usable code he would not consider the sales to be usable, particularly in light of the evidence uncovered about the transfers. The court agrees with the assessor and finds that the lack of a non-usable code designation on the SR-1A forms is not determinative of whether the sales provide reliable proof of value in this matter for the reasons that follow.
As to comparable one, the fact that a lis pendens was filed on the property two months prior to the sale raises the court's suspicion that the seller may have experienced financial distress which influenced the purchase price. "Filing a notice of lis pendens serves as constructive notice to the world that an action involving real property is pending, so that any subsequent purchaser or lienor of that property will take subject to the outcome of the litigation. N.J.S.A. 2A:15-7; Wendy's of So. Jersey, Inc. v. Blanchard Management Corp., 170 N.J. Super. 491, 496 (Ch.Div.1979)." United Sav. & Loan Ass'n v. Scruggs, 181 N.J. Super. 52, 54 (Ch. Div. 1981). In this matter the language of the lis pendens provides notice that the holder of the tax sale certificate, JNH Funding, instituted a civil action to foreclose the tax sale certificate covering the subject property owned by Ricardo Bombino. A tax sale certificate represents either unpaid municipal charges and/or taxes on the property, and may also include interest and penalties on the overdue amount. By statute when the property owner's municipal obligations fall into arrears, a sale will be conducted under the Tax Sale Law, N.J.S.A. 54:5-1 to 137. "When municipal taxes are delinquent for the period stated by statute, a lien arises on the land on which the taxes are assessed, N.J.S.A. 54:5-6, and the municipality may enforce the lien by selling the property as prescribed by statute. N.J.S.A. 54:5-19." Savage v. Weissman, 355 N.J. Super. 429, 436 (App. Div. 2000). The successful bidder at the tax sale pays the lien amount to the municipality and receives the tax sale certificate. A tax sale certificate "is not an outright conveyance. It creates only a lien on the premises and conveys the lien interest of the taxing authority" which in turn provides the purchaser with an "inchoate right or interest" in the property. Ibid. Based on the circumstances, the court is unable to make the assumption that undue duress had no effect on the seller's motive to sell. Therefore, the sales price is not reflective of true value.
"The inchoate interest consists of three rights: the right to receive the sum paid for the certificate with interest at the redemption rate for which the property was sold; the right to redeem from the holder a subsequently issued tax sale certificate; and the right to acquire title by foreclosing the equity of redemption of all outstanding interests, including that of the property owner." In re Princeton Office Park, L.P., 423 B.R. 795 (2010) quoting Varsolona v. Breen Capital Servs. Corp., 180 N.J. 605, 618 (2004).
As to comparable sale number two, it was the subject of several conveyances close in time to one another which resemble the sale of a distressed property, including a transfer for the nominal sales price of $100, and a subsequent sale nine months later by the bank as grantor, for consideration in the amount of $170,000. The seller in this second transaction was U.S. Bank N.A. which raises the suspicion that the sale is not an arms-length transaction and that the property may have been taken back by the bank in foreclosure at a sheriff sale and re-sold. "The fact that a sale of property was by a bank is a factor regarded as impairing the reliability of the sale price as evidence in determining the property's value for taxation purposes." 125 Monitor Street LLC v. Jersey City, 21 N.J. Tax 232, 240 (Tax 2004), citing City Holding Co. v. State Board of Tax Appeals, 127 N.J.L. 168, 169 (1941). Because the seller was a bank, the court questions whether the sale in the amount of $170,000 was made at arms-length. Further, five months after the bank sale, the property sold for $260,000, an increase of $90,000 in value in a very short period of time.
Plaintiff relied on the $170,000 sales price as indicative of value for purposes of comparing the subject property. The sales history more strongly suggests that the bank sold the property at a depressed price, rather than for true market value, particularly given the large difference in the purchase price between the second and third sale. Accordingly, the reliability of plaintiff's comparable as being reflective of a market sale by a seller not under duress or compelled to sell, that would lend competent evidentiary support for valuation purposes, is compromised. The court rejects that sale as unreliable.
As to comparable number three, plaintiff did not provide evidence as to whether it was an arms-length transaction and did not verify the circumstances surrounding the sale with anyone related to the transaction. Exposure to the market is indicative of a market transaction. This property was on the market for twenty-seven days. While not a lengthy period of exposure there was no evidence produced of any factors which would indicate the sale was other than an arms-length sale between a willing buyer and seller.
Even if the court were to accept that comparable sale three reflects a market transaction, in order to properly perform sales comparison there must be substantial similarity between the subject property and the comparable property to permit a reasonable comparison between them. Venino v. Borough of Carlstadt, 1 N.J. Tax 172, 175 (Tax 1980), aff'd o.b. per curiam, 4 N.J. Tax 528 (App. Div. 1981). Factors of comparison considered by courts include the size, condition, location, features and amenities of the properties. Plaintiff possessed insufficient knowledge about critical aspects of the property by which the court could determine comparability, such as the gross living area of the subject and of the comparable, leaving the court without a basic means of comparison. The court is without a means to determine whether the comparable is sufficiently similar without any knowledge of the size of the properties or as to the room type, layout or condition of the comparable home. Plaintiff described the condition of the comparable as excellent however he never undertook an interior inspection of the home and offered no details about the interior condition.
The details that plaintiff did provide reveals that the properties are not similar and that the comparable does not provide sufficient evidence to infer value. The property differed significantly as to the age, location, condition, quality of construction and room count. The subject home was 70 years old and in fair condition while the comparable was only 10 years old and in excellent condition and the homes were located two miles apart in entirely different areas of the City. Plaintiff described the functional utility of the comparable as excellent and the subject as fair. The photograph of the comparable reveals that the properties are not similar in size, but the court is left to guess at the measure since it is absent from the record.
While plaintiff offered adjustments to comparable number three the court does not reach the issue of whether the adjustments are acceptable given that there was insufficient proof of a substantial similarity between the subject property and comparable number three to serve as a reliable indicator of value. The court rejects the sale as proof of value.
Notably, comparable numbers one and two also suffer from many of the same defects. There was no description provided of the gross living area, of the room type and layout or of the interior condition of the home to allow the court a means of comparison between the properties.
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The court therefore finds that plaintiff failed to overcome the presumption of correctness attached to the assessment since the comparable properties did not provide reliable evidence of the value of the subject property based on the circumstances surrounding the sales and due to their lack of comparability to the subject. The clerk of the court is instructed to enter judgment in accordance with this opinion.
Very truly yours,
Christine Nugent