Nonconforming Uses

A landlord owns two Victorian style rooming houses on the New Jersey shore, primarily used as summer rentals. Each contains eighteen living units. Each sits on a lot now zoned for single family residential--but each enjoys valid noncomforming use status under a local "grandfather"ordinance.



Each property is subject to a purchase money mortgage--in favor of the same lender. Each loan underwriter is assumed to have relied on each property's value as a rooming house. One mortgage contains "catch all" language conveying "all other rights that I have, or will have, as owner of the property," the other does not.



After two years the landlord defaults on his mortgages and files a chapter 7 bankruptcy--obtaining a discharge from personal liability for these debts. The rooming houses go unused--and are boarded up. The lender sells and assigns one mortgage--then the lender fails and is taken over by FDIC--and FDIC sells and assigns the other mortgage.



Five years after the rooming houses were boarded up, the assignee/mortgagees commence judicial foreclosures. On one property there's owed $271,949, on the other $340,681.



But by now, through dealings between the local government (a borough) and a tax sale purchaser, the borough is owner of the fee estate for both properties. The borough notifies the assignee/mortgagees that it considers the nonconforming use to now violate local zoning--its "grandfather" status having been terminated by abandonment of the use.



The borough files a lawsuit seeking a declaration that the nonconforming rooming house use no longer exists. Foreclosure sales are postponed for disposition of the lawsuit. How do you rule?



Need more time?



These were the essential facts involved in Borough of Belmar v. 201 16th Ave., Belmar, 309 N.J.Super. 663, 707 A.2d 1106 (App.Div.1997). The Court of Appeal held in favor of the Borough, finding that through his actions the landlord manifested intent to abandon the use, and the assignee/mortgagees failed to take timely action to prevent the abandonment. Five years later is too late.



The Court said that the concept of grandfathering a noncomforming use is a creature of statute--and the statutes and ordinances provide ample protection for landowners and lenders by permitting them to obtain certificates evidencing legal status of a nonconforming use. Otherwise, nonconforming uses are at variance with local planning, and are not favored by the courts.



Then the court discussed the concept of abandonment, deciding that the test for abandonment is a matter of intent--and intent is a question of fact. (Citing Poulathas v. Zoning Board of Adj., 282 N.J.Super. 310, 660 A.2d 7 [App.Div.1995].) Here the Court readily found the landlord's intent to abandon the use to have been shown by a preponderance of the evidence.



But disposing of the mortgagee's security interest in the grandfather status was more problematic. The Court said:



"From the standpoint of property law, how does one describe a valid nonconforming use? It is certainly considered to be a valuable property right. It is incorporeal in nature but passes with a deed passing title to the fee. A prudent purchaser would ensure that the contract made provision for such language in the deed and also obtain, prior to closing title, the statutory certification. Similar prudence is required of a prospective mortgagee both in its commitment letter and by insisting on the statutory certificate.



The nonconforming use is in the nature of an appurtenance (footnote deleted) to the property or a profit (footnote deleted) of the property. Therefore, whether the instrument involved is a deed or a mortgage, the nonconforming use will p***** with the property description if the `catch-all' language (rarely used today) `together with all and singular the buildings, improvements, ways, trees, waters, water courses, rights, liberties, privilege, tenements, hereditaments and appurtances thereto belonging or in any wise appertaining." (Citations omitted.)



Here, the Court found one of the mortgages had no "catch-all" language, so there was no interest in the grandfather status for the assignee/mortgagee to claim. The language of the second mortgage was found sufficient to convey a security interest in the grandfather status, but the Court found that interest had been lost by the assignee/mortgagee's failure to take timely action to prevent the abandonment. The Court indicated that the mortgage docs should have provided that abandonment by the mortgagor would be an incident of default--permitting the mortgagee to take timely action.



So when sold at foreclosure the properties would not have the benefit of a valid nonconforming use, but, until then, "they remain on the properties as valid nonconforming structures."



Comment: I imagine more than a few mortgage lenders in NJ and elsewhere would be surprised by this decision. It should cause them to review their docs.



When we are asked to insure zoning, or the right after demolition to construct new improvements on the same building "footprint," the considerations at play in this case should be clearly in mind. What are the local planning and political dynamics? What are the chances of a legal challenge? What has been the recent use of a property? What are the chances that a proposed use will be perceived as a change, or an attempted enlargement



of a nonconforming use? What are the chances that a past use will be said to have been pursuant to a personal right in a past owner--not running with the land? What are the chances that a past use will be said to have been lost by foreclosure of a mortgage--because the security interest did not include "catch-all" language?



By-Bert Rush********************************