VAPOs Vaporized: New Jersey Court Says No to Property Registration Ordinances

In recent years, many New Jersey municipalities adopted ordinances requiring the registration of vacant and abandoned properties (“VAPOs”). These ordinances required annual registration fees ranging from $300-$1,000. The VAPOs typically include steep penalties for violations (in one instance, a $1,500 per day fine). The VAPOs were the brainchild of a company that pitched the idea, along with template ordinances, to the towns as a way of generating significant revenues with no administrative burden – because the VAPOs all delegated administration to this third-party vendor. Questions rapidly arose regarding the impact of unpaid fees and accrued fines – were they liens encumbering the so-called “vacant and abandoned property” (“VAP”)? Many title companies treated unpaid fees and fines as title exceptions, thus forcing already financially distressed sellers or mortgagees to pay, in some cases, thousands of dollars in order to clear title at closing.

The feature making VAPOs particularly repugnant is the surprising typical definition of “Vacant and Abandoned Properties” as “any real property located in the municipality, whether vacant or occupied, that is in default on a mortgage, has had a lis pendens filed against it by the lender holding a mortgage on the property, is subject to an ongoing foreclosure action by the lender, is subject to an application for a tax deed or pending tax assessor’s lien sale, or has been transferred to the lender under a deed in lieu of foreclosure” [ emphasis added].

That incongruous definition and the outsourcing of administration led one intrepid lender to file suit challenging the validity of the scheme.[1] In an August 16, 2021 opinion (although not approved for publication), the Court struck down three such VAPOs stating that each ordinance was arbitrary, capricious and unreasonable and without authorization under New Jersey legislation defining the scope of regulatory authority accorded to municipalities. That decision, issued in Atlantic County and now on appeal, instantly called into question the validity of similar VAPOs throughout the State of New Jersey.

The purported purpose of the VAPO at issue in McCormick (like every comparable VAPO in the State) was to “track and register what was considered vacant and abandoned properties…and charge and collect fees for properties meeting that definition.” McCormick at 2. While the Court acknowledged that the Townships have a “legitimate interest” in regulating such properties, the Court rejected the sweeping definition of “vacant and abandoned” adopted by each Township. Id. The Court stated that it had “great concerns that this ultra-broad definition of vacant and abandoned homes, which is triggered upon a mere [mortgage] default, is targeting financially vulnerable homeowners, is driven towards increasing municipal revenue, and is not reasonably addressing issues concerning VAPs.” Id. at 22. The Court also rejected the delegation of the duty to register and collect fees to a private third party (in this case, Pro Champs) as an impermissible delegation of municipal authority. Id. at 20-21.

McCormick is up on appeal, leaving the viability of VAPOs unsettled. In the interim, transactions involving both commercial and residential property in New Jersey may be easier since parties will not likely be burdened by extortionate VAPO fees. Transforming a piece of real estate from “stress to success” should be simpler and less costly if the McCormick decision is upheld on appeal – thus permanently burying this draconian ordinance.

In response to the McCormick ruling, many municipalities are now responding to requests for refunds of previously paid VAPO fees. Lenders and property owners may wish to consider seeking a refund of any

[1] McCormick 106 L.L.C. vs. Community Champions Corp. et. al, Docket No. ATL-L-2311-18, Superior Court of New Jersey, Atlantic County Law Division.

For Further Information:

Dilworth Paxson’s Real Estate and Real Estate Repositioning Groups are ready to provide practical advice to navigate any real estate transaction or refund request. For more information, please contact Harold G. CohenJoseph F. KesslerRosemary J. Loverdi or any member of Dilworth’s real estate team.