TAKE THAT!! N.J. Legislature and Governor Fire Back at Recent Judicial Decisions Critical of Land Banking Processes

Last week, Governor Phil Murphy signed the “New Jersey Land Bank Law”, which now allows municipal agencies in New jersey to create “land banks” and “land banking” agencies to address and potentially revitalize “vacant, abandoned, and other problem properties” within their boundaries.  This law, P.L. 2019, c. 159, takes effect immediately, and appears to be a direct response to two recent judicial decisions which stopped government agencies from using land banks under other prior legislation.

Under the law, municipalities can designate as land banks entities such as include nonprofits, redevelopment entities, county improvement authorities, and departments and agencies of the municipality itself.   Those land banks may then acquire properties on their own, act as the municipality’s agent to buy liens at a tax sale, carry out lien foreclosures, and take the properties via eminent domain.  To be considered vacant under the law, the properties need to have no legal occupants for six months are considered vacant.  In addition, properties behind on property taxes, or threatening community safety can be classified as abandoned.  The legislation is available here.

The new law appears to be a direct response to two recent court decisions by the Appellate Division, where prior efforts to use eminent domain for “land banking” were disallowed.  In Borough of Glassboro v. Grossman, decided in January of this year, the appellate court refused to allow the Borough of Glassboro to use New Jersey’s Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-1, et seq. (“LRHL”), to take private property via eminent domain for local redevelopment purposes, unless the taking of the property could first be shown to be reasonably necessary for the redevelopment project in question (“there must be a particular redevelopment project identified and tied to the proposed acquisition.”).  This holding was based upon the court’s conclusion that the LRHL only permits the use of eminent domain to achieve redevelopment of a blighted area, and does not permit land banking.  

Only a few weeks after Grossman was decided, a different appellate panel reached a similar conclusion in Casino Reinvestment Development Authority v. Birnbaum.  There, a different appellate panel followed the reasoning of the Grossman court.  Although the taking in Birnbaum was not attempted using the LRHL, but instead relied upon separate legislative authority provided to the Casino Reinvestment Development Authority pursuant to N.J.S.A. 5:12-182, the Birnbaum court nevertheless recognized that the taking power conferred upon the CRDA must be constrained by the limitations of the state and federal constitutions, meaning that a recognized public purpose is required in order to use eminent domain in every instance.  Against that backdrop, the purported public purpose for the taking was redevelopment but, the court held that the CRDA did not “have unfettered discretion in defining what is “necessary,” and therefore that “its actions are subject to review on the basis of manifest abuse of power”.  Slip op. at 24.  The appellate court upheld the factual determination of the trial court that there was insufficient evidence of any project occurring in the foreseeable future, and thus affirmed the dismissal of the CRDA’s condemnation of the Birnbaum property.  In other words, the Appellate Division held in Birnbaum, as it did a month earlier in Grossman, that “land banking” was not a valid public purpose for the use of eminent domain.

While the new legislation has its roots dating back to 2018, before Grossman or Birnbaum were decided on appeal, its enactment this month sends a clear shot by the State Legislature back to our judiciary.  Entitled the “New Jersey Land Bank Law”, it unmistakably pronounces that the “continued presence and proliferation” of “vacant, abandoned and other problem properties” has a negative effect on public health and welfare and requires this Legislative mandate that “land banking” be recognized as a valid public purpose for the use of eminent domain.  The approval of the bill by New Jersey Governor Murphy has been hailed by some as a much-needed fix:

Murphy just gave N.J. cities a new weapon to revitalize abandoned buildings

Will this new law help to solve the negative effect on public health and welfare, as it suggests it was enacted to do, or will it lead to abuses of private property rights in New Jersey?  If land banking has been declared by our state courts to be ultra vires, beyond the legislative power given to local and state agencies to achieve redevelopment (by removing blight) under the LRHL and the CRDA’s enabling legislation, then how can the use of eminent domain for land banking under the new law comply with the constitutional limitations on the use of eminent domain?   Perhaps this holding from the Birnbaum court forecasts how a future court might look at the “New Jersey Land Bank Law”:

“We conclude here as we did in Glassboro that the proposed stockpiling of land for future redevelopment

does not suffice to establish a taking is reasonably necessary.”  Birnbaum, Slip Op. at 26

If proposed stockpiling (land banking) for future redevelopment does not suffice to establish that a taking is reasonably necessary, then how can the new law justify takings specifically undertaken for that purpose?  Will land banking be recognized as a valid public purpose for local agencies, or for new “land bank entities” as they embark upon the acquisition and condemnation of properties to create land banks in the future?  Land banking has been utilized in other states, with mixed results and with anticipated controversy:

Michigan:  Land Banks Profit by Cutting in Front of People Wanting to Buy Property

Connecticut:  Hartford Land Bank to Help Find Responsible Owners for Blighted, Vacant Properties

New York:  NYC Comptroller Pushes Land Bank as Affordable Housing Tool

This new law in New Jersey, and the activity it promises to create, will be worth watching.

MROD’s Anthony F. DellaPelle served as local counsel to the Institute for Justice, an amicus curiae, in connection with the Glassboro v. Grossman appellate matter referenced above.