Court Opinion

ID: 4448726
Source: CourtListenerOpinion
Date Created: 2019-10-22 14:07:23.519309+00
Date Added: 2024-06-11T14:45:30.712948
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                                APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited . R. 1:36-3.

                                                         SUPERIOR COURT OF NEW JERSEY
                                                         APPELLATE DIVISION
                                                         DOCKET NO. A-5879-17T2

MANUFACTURERS AND
TRADERS TRUST COMPANY,
as Indenture Trustee,

          Plaintiff-Respondent,

v.

MARINA BAY TOWERS URBAN
RENEWAL II, LP, MARINA BAY
TOWERS URBAN RENEWAL, LP,
BEACH CREEK MARINA, INC., 1
ESSEX COUNTY IMPROVEMENT
AUTHORITY, CITY OF NORTH
WILDWOOD, CONSULT URBAN
RENEWAL DEVELOPMENT
CORPORATION, BARBARA
WATERMAN, ALICE WALSH,
FRANCES DAVIS, LOUISE
JARAMILLO, CAROLYN NARCISO, 2

1
  Beach Creek Marina, Inc. is incorrectly identified as Beach Creek Marina,
LLC in the caption of the foreclosure complaint.
2
   This defendant was identified as "Carolyn Narciso" in the foreclosure
complaint but "Carol Narciso" in the receivership action. Her attorneys, South
Jersey Legal Services, identify her as "Carol" in the attachment to their Case
Information Statement.
JEAN HOPPER, JOSEPH MORELLO,
EDWARD & RAMONA HELLER,
DOROTHY J. KIRWIN, PAUL & JOAN
NEWELL, BONNIE MCNAMARA, and
PHYLLIS HANAHAN,

      Defendants-Respondents,

and

STATE OF NEW JERSEY
DEPARTMENT OF COMMUNITY
AFFAIRS, NEW JERSEY HOUSING
AND MORTGAGE FINANCE AGENCY,
and STATE OF NEW JERSEY,

      Defendants-Appellants,

and

MARINA BAY TOWERS
CONDOMINIUM ASSOCIATION, INC.,
US BANK – CUST PRO CAPITAL I,
LLC, US BANK CUST FOR TOWER
DBW, QUALITY ROOFING SUPPLY
CO. INC., THYSSENKRUPP
ELEVATOR AMERICAS, MULTI ROOF
MAINTENANCE LLC, ALEXANDER
DANNIBALE, MARGARET KERNS,
MARGARET PASSIO, JOSEPH
MARLEY, MARY C. TIETZ, JAMES
LAWLESS, JAMES GETSINGER,
ALICE LONG, ANTOINETTE
NUGENT, JOAN M. SHEFSKI, MARY
E. SMITH, LOUIS WOJTIW, JOAN
CHESAITIS, ANTHONY BOYLE,
MALCOLM FERENTZ, JAMES &
LINDA MCGRATH, JACQUELINE

                                    A-5879-17T2
                                2
HUGES, SANDRA WHITENER,
NADALINE PEACOCK, LILLIAN
CAPONE, MARGARET MULDREW,
ELIZABETH JOVOVICH, JAMES
HUNDZYNSKI, MARIANNE
BATCHELOR, BERNITA HOLT,
JOSEPH F. RADOSLOVICH, MARIE T.
BRADY, CLARA MORRIS, DOLORES
MCCOACH, LINDA ANSELL,
FRANCIS MCCLAIN, HELEN
ANDREWS, MICHAEL NORESKI,
SYLVIA ARMSTRONG, PATRICIA
DEVINE, EILEEN O'DONNELL,
JOSEPH PERKIS, MADELINE A.
HOGAN, RONALD KURTZ,
GERALDINE PAXTON, RICHARD &
IRENE MCALLISTER, MICHELLE
COYLE, PATRICIA M. ALLEN,
DOMINIC RAFFAELE, JOSEPH
MADDEN, JAMES HERON, PATRICIA
TRIMBLE, SARA A. KANE, HELEN
UHLEIN, JOAN STAUB, WILLIAM H.
SMITH, ELSIE SMITH, VIRGINIA
GIVIN, ELAINE COHEN, ALICIA &
GUY STEVENS, HELEN &
FREDERICK BEAVER, RICHARD
SINCLAIR, BARBARA SMITH, ANN
HARRIS, IRENE D. STARAHS,
BARBARA MARTINELLI, GERTRUDE
SNYDER, SALLY T. SMITH, MARIE
GRAY, and WALTER CRAWFORD,

    Defendants.

BONNIE MCNAMARA, ALICE WALSH,
BARBARA WATERMAN, CAROL

                                  A-5879-17T2
                             3
NARCISO, FRANCES DAVIS, PHYLLIS
HANAHAN, EDWARD HELLER, JEAN
HOPPER, DOROTHY KIRWIN, and JOAN
NEWELL,

      Plaintiffs-Respondents,

and

EILEEN O'DONNELL, NADALINE
PEACOCK, JOAN SHEFSKI, ALICE LONG,
BARBARA SMITH, PATRICIA
TRIMBLE, and SANDRA WHITENER,

      Plaintiffs,

v.

MARINA BAY TOWERS URBAN
RENEWAL II, LP, BEACH CREEK
MARINA, INC., RUBICON DEVELOPMENT,
LLC, RUBICON PROPERTIES, LLC,
CONSULT URBAN RENEWAL
DEVELOPMENT CORPORATION, PAC
CAPITAL, LLC, PAUL COCOZIELLO,
and ESSEX COUNTY IMPROVEMENT
AUTHORITY,

      Defendants-Respondents,

and

NEW JERSEY DEPARTMENT OF
COMMUNITY AFFAIRS,

      Defendant-Appellant,

                                     A-5879-17T2
                                4
and

MARINA BAY TOWERS
CONDOMINIUM ASSOCIATION, INC.,
JPMORGAN CHASE BANK, NATIONAL
ASSOCIATION, M & T BANK, T.D. BANK,
N.A., US BANK-CUST PRO CAPITAL I, LLC,
and US BANK-CUST FOR TOWER DBW,

     Defendants.
__________________________________________

         Argued October 2, 2019 - Decided October 22, 2019

         Before Judges Sabatino, Sumners and Natali.

         On appeal from an interlocutory order of the Superior
         Court of New Jersey, Chancery Division, Cape May
         County, Docket Nos. F-049229-14 and L-0365-14.

         Susan Marie Scott, Deputy Attorney General, argued
         the cause for appellants (Gurbir S. Grewal, Attorney
         General, attorney; Melissa H. Raksa, Assistant
         Attorney General, of counsel; Susan Marie Scott, on the
         brief).

         James N. Lawlor argued the cause for respondent
         Manufacturers and Traders Trust Company (Wollmuth
         Maher & Deutsch LLP, attorneys; James N. Lawlor and
         Olivia J. Italiano, on the brief).

         Salvatore Perillo argued the cause for respondent PAC
         Capital, LLC, (Nehmad Perillo Davis & Goldstein, PC,
         attorneys, join in the brief of respondent Manufacturers
         and Traders Trust Company).

         Keith A. Bonchi argued the cause for respondents
         Marina Bay Towers Urban Renewal II, LP and Marina

                                                                    A-5879-17T2
                                    5
            Bay Towers, LP (Goldenberg, Mackler, Sayegh, Mintz,
            Pfeffer, Bonchi & Gill and Thomas George Aljian,
            attorneys; Keith A. Bonchi, of counsel and on the brief;
            Elliott J. Almanza, on the brief).

            Robert A. Fagella argued the cause for respondent
            Beach Creek Marina, Inc. (Zazzali, Fagella, Nowak,
            Kleinbaum & Friedman, attorneys; Flavio L. Komuves,
            on the brief).

            Michael D. Mezzacca argued the cause for respondents
            Consult Urban Renewal Development Corporation,
            Paul Cocoziello, Rubicon Development, LLC, and
            Rubicon Properties, LLC (Bourne, Noll & Kenyon, PC,
            attorneys; Michael D. Mezzacca, on the brief).

            Robert Beckelman argued the cause for respondent City
            of North Wildwood (Wilentz Goldman & Spitzer, PA,
            attorneys; Robert Beckelman, on the brief).

            Olga D. Pomar argued the cause for respondents Jean
            Hopper, Phyllis Hanahan, Joan Newell, Edward Heller,
            Louise Jaramillo, Bonnie McNamara, Joseph Morello,
            Alice M. Walsh, Dorothy Kirwin, Carol Narciso,
            Barbara Waterman and Frances Davis (South Jersey
            Legal Services, Inc., attorneys; Olga D. Pomar, on the
            brief).

PER CURIAM

      This appeal by the State of New Jersey and two of its agencies involves

an income-restricted senior citizen housing project, Marina Bay Towers, that

was built in the City of North Wildwood with the assistance of several sources

of governmental funding.     The project was conceived by developer Paul

                                                                       A-5879-17T2
                                       6
Cocoziello, who owns several of the entities involved in the project. Those

entities include the owner and lessor of the land where the project was built,

Beach Creek Marina, Inc. ("Beach Creek"); the construction manager, Consult

Urban   Renewal    Development     Corporation   ("CURDC");     and   Rubicon

Development, LLC, and Rubicon Properties, LLC, companies involved in

developing and managing the property.       Cocoziello is also the president,

executive officer and managing member of PAC Capital, LLC ("PAC Capital"),

the company that purchased $7.4 million in bonds issued by the Essex County

Improvement authority ("ECIA") to help finance the project. In addition, he is

the authorized agent and representative of plaintiff Marina Bay Towers Urban

Renewal II, LP ("MBT II"), the limited partnership that currently owns the

building.

      Specifically, this appeal is from an interlocutory order of the Chancery

Division approving a plan to restructure and rehabilitate Marina Bay Towers

(the "Restructuring Plan" or "Plan") pursuant to foreclosure litigation, and

denying the appointment of a receiver. The foreclosure and receivership actions

were not consolidated but were heard together in the Chancery Division.

      As we will discuss more extensively in Part I of this opinion, plaintiff

Manufacturers and Traders Trust Company ("MTTC"), acting as trustee for PAC

                                                                       A-5879-17T2
                                      7
Capital, filed the foreclosure action in connection with $7.4 million in bonds

that had been issued in 2005 by the ECIA, to refinance the Marina Bay Towers

project. The bonds were all purchased by PAC Capital. The foreclosure action

was filed in November 2014, approximately three months after certain tenants

(the "Litigating Tenants") filed the receivership petition.

      The housing project has required significant repairs due, in large part, to

extensive damage sustained during Hurricane Floyd and, thereafter, Superstorm

Sandy.

      Construction of Marina Bay Towers was initially financed through an

allocation of federal Low Income Housing Tax Credits ("LIHTCs"), awarded in

1997 by the New Jersey Housing and Mortgage Finance Agency ("HMFA").

The project was also financed by a loan from the New Jersey Department of

Community Affairs ("DCA"), also awarded in 1997, through its Neighborhood

Preservation Balanced Housing Program (the "Balanced Housing Program"). In

connection with the financing provided by the HMFA and the DCA, the State

imposed certain occupancy and rent restrictions, also referred to in this opinion

as "affordability controls," on the property.

      The trial court conditionally approved the proposed Restructuring Plan,

subject to oversight by a Special Master. As contemplated by the Plan, the court

                                                                         A-5879-17T2
                                        8
extinguished the HMFA and DCA rent and occupancy restrictions. The court

based its decision on a federal statute, 26 U.S.C. § 42(h)(6)(E)(i)(I), as well as

its equitable powers under N.J.S.A. 40:37A-116, a provision affecting

foreclosure actions set forth in the County Improvement Authorities Law,

N.J.S.A. 40:37A-44 to -135 ("CIAL").

      On appeal, the HMFA and the DCA (collectively, "the State") principally

argue that the trial court erred by extinguishing the rent and occupancy

restrictions and refusing to appoint a receiver. The participating respondents,

the City of North Wildwood and the Litigating Tenants, largely support the

State's arguments, although they have not filed cross appeals.

      For the reasons that follow, we conclude the trial court correctly

determined that, under 26 U.S.C. § 42(h)(6)(E)(i)(I), the rent and occupancy

restrictions imposed by the HMFA in connection with the award of LIHTCs are

extinguished upon a final judgment of foreclosure.      However, the trial court

incorrectly ruled that the DCA rent and occupancy restrictions are automatically

terminated by foreclosure under the federal statute and by the rules governing

the Balanced Housing Program. Despite that particular error, the trial court

nonetheless properly exercised its equitable powers and discretion under the

CIAL, N.J.S.A. 40:37A-116, to nullify the DCA provisions containing the

                                                                          A-5879-17T2
                                        9
affordable housing restrictions and replace them with revised restrictions for

low-income and moderate-income residents that are set forth in the

Restructuring Plan. The trial court reasonably found that the revised restrictions

were justified to save the economic viability of the project.

      We further hold the trial court reasonably exercised its discretion in

denying the receivership application, given, among other things, the condition

of the building, the fact that more than half of the units are unoccupied, and the

lack of funding to accomplish the necessary repairs.

      Certain aspects of the trial court's findings in approving the Restructuring

Plan do require supplementation. In particular, the court did not determine

whether the proposed successor developer was a "qualified housing sponsor,"

under N.J.S.A. 40:37A-107(j), and whether the obligations under the ECIA lien

could be met if the project was required to satisfy the definition of a "qualified

residential rental project" under 26 U.S.C. § 142(d)(1).        Consequently, on

remand, the trial court shall make these required additional findings and modify

its approval of the Restructuring Plan, as may be appropriate. Also, the wording

of the new deed restriction approved by the trial court appears to conflict with

the occupancy and rent restrictions in the Restructuring Plan. The trial court

must resolve on remand that apparent conflict in the deed restriction.

                                                                          A-5879-17T2
                                       10
      In all other respects, the trial court's decision is affirmed.

                                         I.

      As the trial court aptly stated at the outset of its extensive written opinion,

this case is one of "novelty and complexity, involving fourteen days of abstruse

financial detail and literally dozens of motions, conferences and meetings with

the parties over more than two years[.]"

      Our following recitation of the facts and procedural history delves into the

aspects of the project germane to the issues raised on appeal by the State,

particularly the affordability restrictions.

      The LIHTCs

      A critical component of the initial financing of this development was the

award of LIHTCs. 3 In July 1997, the HMFA notified the project's developer,

then known as Marina Bay Towers Urban Renewal, LP ("MBT"), 4 that its

application for LIHTCs had been approved for an annual amount of credits not

3
  We discuss the legal and financial aspects of the LIHTCs in more detail, infra,
in Part II.
4
  The notification was actually sent to a predecessor entity, St. Anne's Urban
Renewal, LP ("St. Anne's"). St. Anne's was the original developer for the project
but was reorganized and renamed Marina Bay Towers Urban Renewal, L.P. in
the mid-1990's. For simplicity, we will refer to both entities as MBT.

                                                                             A-5879-17T2
                                        11
to exceed $1,409,070. Because the credits were available over a ten-year period,

the total allocation was $14.1 million. 5 MBT raised $11.1 million to finance the

project through the sale of these tax credits to a limited partner.

      The DCA Balanced Housing Program Funds

      In September 1997, the DCA notified the City that its application for funds

from the Balanced Housing Program for this project had been approved in the

amount of $1,478,400. 6      The DCA and the City accordingly executed a

Grant/Loan Agreement (the "Grant Agreement") on November 21, 1997. The

stated purpose of that DCA award was to "provide funds to construct 142 one-

bedroom apartments for rent to low income senior citizens to be known as . . .

Marina Bay Towers." Although termed a "grant," the award had certain factors

of a mortgage loan, as we will describe.

5
   See generally this court's previous unpublished opinion in Royal Tax Lien
Servs., LLC d/b/a/ Crusader Lien Servs., LLC v. Marina Bay Towers Urban
Renewal II, LP ("Royal Tax Lien"), No A-1638-13 (App. Div. Aug. 14, 2015)
(slip op. at 6).
6
   At the time, the Balanced Housing Program rules provided that applications
could be accepted only from municipal governments, and that funds were to be
allocated to municipalities on behalf of specific projects. 24 N.J.R. 1385(a),
1389, 1391 (April 6, 1992). The rule was amended in 2006 to also allow
applications from non-profit organizations and for-profit organizations as long
as the proposed project met certain criteria. 38 N.J.R. 3711(a), 3716 (Sept. 18,
2006); N.J.A.C. 5:43-1.3.
                                                                         A-5879-17T2
                                       12
      The Grant Agreement required the City to enter into a contract with MBT

"to provide up to $1,478,400 of Balanced Housing Funds for developing the

project." The Agreement required the parties to include terms that: (1) MBT

agreed to create 142 new, 725 square foot, one-bedroom, affordable housing

units renting for $375 per month; (2) MBT would "execute a note in the amount

of $1,478,400 and mortgage in favor of the [DCA];" (3) MBT would "comply

with the terms and conditions set forth in [the Grant] Agreement;" (4) MBT

would "enter into an Affordable Housing Agreement, Declaration of Covenants,

Conditions and Restrictions with [DCA's] Affordable Housing Management

Service;" and (5) MBT would execute an Affordable Housing Management

Service Agreement ("AHMSA").

      The Grant Agreement further stipulated that "[a]ny unit funded under this

Agreement shall be subject to affordability controls as specified in the N.J.A.C.

5:14 Chapter 4 et. seq." It stated that "[i]n addition to any other laws, rules and

regulations which may be applicable to the performance of this Agreement, the

Grantee shall be governed by the provisions of the Fair Housing Act of 1985

(N.J.S.A. 52:27D-301 et seq.) [the "FHA"] and the . . . Balanced Housing

                                                                           A-5879-17T2
                                       13
Program Rules (N.J.A.C. 5:14)." 7 The Grant Agreement also required the City

to provide a thirty-year tax abatement for the project.

      In furtherance of the Grant Agreement, MBT, along with CURDC and, on

the other hand, the City, executed in October 1997 a "Third Party Agreement."

The agreement included all of the terms required by the Grant Agreement except

the provision requiring MBT to execute the "Affordable Housing Agreement,

Declaration of Covenants, Conditions and Restrictions"

      In October 1998, MBT executed a Mortgage Note for $1,478,400 in favor

of DCA's Balanced Housing Program (the "DCA Note"). The DCA Note stated

that "[t]he proceeds of the loan shall be used to fund a portion of the

development costs incurred in the (construction/rehabilitation) of a 142 unit

(senior) rental project that will be occupied by duly qualified low and moderate

income senior households in accordance with the [FHA]." No interest was due

on the note until construction was completed, after which point simple interest

accrued at two percent per annum. The principal amount, plus accrued interest,

was due and payable, at the option of the DCA, thirty years after the project

received a final certificate of occupancy.

7
  The Balanced Housing Program rules were recodified in July 1998 as N.J.A.C.
5:43. See 30 N.J.R. 2644(a) (July 20, 1998).

                                                                        A-5879-17T2
                                       14
      A mortgage securing the DCA Note (the "DCA Mortgage") was executed

the same day as the DCA Note. The DCA Mortgage recited that MBT

            covenants and agrees to comply with the Balanced
            Housing Program and any rules or regulations
            promulgated pursuant thereto and with any
            amendments or supplements of these rules or
            regulations as the same exist as of the date hereof,
            including but not limited to the Affordability Controls
            requiring that the units rehabilitated or constructed with
            the mortgage proceeds remain affordable to low and
            moderate income families. The Borrower further
            covenants and agrees to comply with all requirements
            imposed upon it by the Grant Agreement or any
            agreement with the Lender reflecting said Agreement.
            If any provision of this Mortgage shall be determined
            to be inconsistent with the Balanced Housing Program,
            its rules or regulations or the Grant Agreement, all of
            the latter shall govern.

            [(Emphasis added).]

      In that same vein, the DCA Mortgage required "the Project [to] be used

solely to provide residential housing for persons identified in [MBT's]

application for funding." 8 In addition, the mortgage stated that the "Mortgage

8
   Presumably, MBT's application for funding, which has not been provided in
the record on appeal, identified the prospective tenants as low-income senior
citizens. Several of the DCA documents do not specifically describe the DCA
affordability controls and instead, refer to both low and moderate-income
households or omit any reference to senior citizens. Plaintiffs have not disputed
that the DCA affordability controls imposed by the various documents executed
in connection with the Balanced Housing Program funding required the units to
be rented to low-income senior citizens.
                                                                         A-5879-17T2
                                       15
Loan provided for herein shall be subject to statutory and regulatory restrictions

contained in the [FHA] and accompanying regulations, and in connection

therewith the Lender shall have the powers set forth in the Act, and the Borrower

hereby consents to such restrictions and powers and agrees to be bound thereby."

(Emphasis added).

      On December 23, 1998, MBT executed the AHMSA, agreeing to certify

households for all units in the project using the applicable federal income

guidelines. The project was described in the AHMSA as 142 low-income units.

      Construction of the Project and Various Setbacks

      Construction of the project began in late 1998. After significant delays, a

temporary certificate of occupancy was issued for sixteen of the residential units

in December 2000. The project was deemed "placed in service" for tax credit

purposes. A final certificate of occupancy issued in December 2001. The delays

caused significant financial setbacks, such that the project's original financing

plan was no longer viable.

      On December 1, 2002, MBT executed a mortgage in favor of CURDC (the

"CURDC Mortgage"), securing a promissory note in the amount of $1,567,163.

That mortgage was "subject and subordinate to all existing and future easements,

deed restrictions, [and] covenants running with the land . . . relating to the

                                                                          A-5879-17T2
                                       16
Mortgaged Premises and to its purposes as low income senior citizen housing,

including, without limitation, those deed restrictions imposed by the [HMFA]."

(Emphasis added).

      In December 2002, MBT and Beach Creek executed a Deed of Easement

and Restrictive Covenant for Extended Low-Income Occupancy in favor of the

HMFA (the "HMFA Deed"). The HMFA Deed required 100% of the rental units

at Marina Bay Towers to remain "rent restricted and occupied by individuals

whose income is 50% or less of area median gross income (AMGI)" for forty-

five years, unless the restrictions were terminated by foreclosure pursuant to the

provisions of the Internal Revenue Code ("IRC" or "Code").

      According to Debra Urban, Senior Director of Programs for the HMFA,

the HMFA was informed in 2004 "that as a result of various natural disasters

and defects in the construction of Marina Bay Towers, approximately

$14,000,000 in cost overruns/rehabilitation expenditures had been made to the

facility." Consequently, a second round of financing was conceived by MBT II,

the successor entity to MBT.

      The ECIA Bonds that Refinanced the Project

      In May 2005, the City adopted Ordinance 1474 designating the ECIA as

the redevelopment entity for the project. Three days later, the ECIA adopted a

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                                       17
resolution authorizing the sale of $7.4 million in Multifamily Housing Revenue

Bonds (the "ECIA Bonds") to help refinance the project. 9

      In July 2005, the City adopted a resolution consenting to the assignment

of its Third Party Agreement and a 2002 PILOT Agreement 10 with MBT to MBT

II. In August 2005, MBT and MBT II executed the assignment. MBT II also

assumed the CURDC Mortgage, and the mortgage was modified to add a

provision stating that it was subordinate only to the mortgage securing the ECIA

Bonds.

      Meanwhile, in August 2005, the ECIA executed an indenture agreement

(the "Indenture") with JPMorgan Chase Bank, National Association

("JPMorgan"), as trustee, for $2.8 million in Series A and $4.6 million in Series

B Multifamily Housing Revenue Bonds. Pursuant to a loan agreement of the

same date (the "ECIA Loan Agreement"), the ECIA agreed to loan the proceeds

of the bonds to MBT II (the "ECIA Loan"). Under the ECIA Loan Agreement,

MBT II agreed to operate the project as a "qualified residential rental project"

9
  The Cape May County Board of Chosen Freeholders authorized the ECIA to
issue the bonds because Cape May County did not have a county improvement
authority.
10
   PILOT is an acronym for payment in lieu of taxes. The City entered into this
agreement pursuant to the Long Term Tax Exemption Law, N.J.S.A. 40A:20-1
to –22.
                                                                         A-5879-17T2
                                      18
as defined in Section 142(d) of the IRC, 26 U.S.C. § 142(d).

      PAC Capital purchased the bonds in August 2005. The proceeds were

loaned to MBT II, which executed promissory notes for the Series A and B

bonds. The loan and promissory notes were secured by a Mortgage and Security

Agreement (the "ECIA Mortgage") entered into by MBT II and the Marina Bay

Towers Condominium Association, Inc., as mortgagors, and JPMorgan as

mortgagee.

      With respect to the affordability limitations, the ECIA Mortgage

contained the following provisions regarding "Restrictions on the Property:"

             (a) The parties acknowledge and agree that the
             mortgage granted by this Mortgage is subject and
             subordinate to all existing and future easements, deed
             restrictions, covenants running with the land and rights
             of way relating to the Property and to its purposes as
             low income senior citizen housing, including, without
             limitation, those deed restrictions imposed by the
             [HMFA Deed].[ 11 ] The foregoing easements, deed
             restrictions, covenants running with the land and rights
             of way shall be deemed Permitted Encumbrances for
             purposes of the Loan Documents. [12]

             (b) Notwithstanding anything to the contrary contained
             in the Loan Documents, Mortgagee agrees that the lien

11
   The ECIA Mortgage referred to the HMFA Deed as the Regulatory
Agreement.
12
  The "Loan Documents" included the Indenture, promissory notes, ECIA Loan
Agreement, and ECIA Mortgage.
                                                                        A-5879-17T2
                                       19
            created by this Mortgage shall be subject to the
            provisions of the [HMFA Deed] and that certain New
            Jersey Department of Community Affairs, Division of
            Housing and Community Resources, Housing
            Affordability Service Deed of Easement and Restrictive
            Covenant for Extended Low and Moderate Income
            Occupancy dated July 15, 2005.

            [(Emphasis added).]

A corresponding deed (the "DCA Deed") also was issued, as well as a related

Affordable Housing Agreement ("AHA") between the DCA and MBT II.

      The intent of the DCA Deed was "to bind the owner of the described

premises and notify all future purchasers . . . that the housing unit [was]

encumbered with affordability controls as contained in the [AHA]." (Emphasis

added). The deed provided that it was "binding on all successors in interest to

the Building and Project . . . and shall run with the land until the end of the

Affordability Control Period which [was] defined in the [AHA] as a period for

at least thirty (30) years beginning January 1, 2002." (Emphasis added).

      The AHA recited that "unforeseen hardships [had] necessitated the

substantial rehabilitation of the Property after [it] was placed in service for

purposes of IRC [Section] 42." Because "[t]he existing financing structure was

insufficient to handle the cost of the substantial rehabilitation," MBT II had

"provided a long term financing plan to insure the continuing affordability of

                                                                       A-5879-17T2
                                     20
the housing for income eligible tenants."

      The stated objective of the AHA was to "ensure that the affordability

controls [were] contained directly in the property deed for the premises . . . so

as to bind the owner," and to "ensure that the described housing units . . .

remain[ed] affordable to low and moderate income eligible households for that

period described in [the agreement]" (Emphasis added). MBT II agreed to "not

rent the Affordable Housing unit other than to a Renter who has been certified

utilizing the income verification procedures established by [the DCA, HMFA

and Council on Affordable Housing] to determine qualified Low and Moderate

Income-Eligible Households." Notably, the AHA provided that it "shall not be

terminated in the event of a judgment of Foreclosure."

      Additional LIHTCs

      By securing the ECIA Bond financing, the project became eligible for,

and was later awarded in 2005, an additional annual allocation of $665,061 in

LIHTCs by the HMFA, which, according to Urban, generated "approximately

$6.3 million in equity for MBT II." 13 MBT II and Beach Creek accordingly

13
   The additional allocation was for 4% tax credits as opposed to the original
allocation of 9% tax credits. Urban explained that the source of the funding
determined the type of tax credit awarded. "Nine percent tax credits are
typically [associated with] conventional, market-rate financing . . . [w]hereas,
                                                                         A-5879-17T2
                                      21
executed an amendment to the HMFA Deed, effective December 30, 2005.14

The restrictions in the HMFA Deed, which remained in full force and effect,

were made applicable to the new allocation of LIHTCs.

      Superstorm Sandy Damage

      When Superstorm Sandy hit New Jersey in October 2012, Marina Bay

Towers suffered significant damage. To assess that damage, MBT II engaged

FTI Consulting ("FTI") to review the reports of various experts and the

construction drawings to estimate the cost of reconstruction of the damaged

portions of the facility. FTI's preliminary estimate issued in June 2013 (the "FTI

Report") forecast repair costs exceeding $11 million. MBT II provided the FTI

Report to its insurance carrier and the HMFA. The insurance carrier refused to

pay the claim in full and MBT II has been litigating that dispute.

      Default on the ECIA Bonds

      MTTC became the successor trustee under the Indenture, effective April

the projects that receive the benefit of tax exempt bond financing would only be
qualified for a four percent tax credit."
14
    Although Urban certified that MBT II was awarded an additional annual
allocation of $665,061 in LIHTC, the amendment to the HMFA Deed stated that
the project had become eligible for "an estimated annual amount of $656,298"
in LIHTC. This minor numerical difference is not material to the issues before
us.
                                                                          A-5879-17T2
                                       22
14, 2014. In April 2014, MTTC issued a default notice regarding the ECIA

Bonds. MTTC declared that all amounts outstanding were "immediately due

and payable."

      The Tenants' Receivership Action

      In August 2014, the Litigating Tenants filed an Order To Show Cause

("OTSC") and a "Petition for Receivership, Verified Complaint for Specific

Performance and for Declaratory and Injunctive Relief" in the Chancery

Division. Their petition alleged that the building had suffered "habitability

problems such as water leaks, improperly sealed windows, and damaged

ceilings, walls and floor coverings . . . for years," and that the owner had

repeatedly been cited for code violations. The Litigating Tenants sought the

appointment of a receiver, pursuant to the Multifamily Housing Preservation and

Receivership Act, N.J.S.A. 2A:42-114 to -142 (the "Receivership Act"), as well

as certain other relief.

      MTTC's Foreclosure Complaint

      In November 2014, MTTC filed in the Chancery Division a complaint in

foreclosure based on the default in bond payments. The complaint alleged that

storm damage to 135 units resulting from Superstorm Sandy had not been

repaired, with fifty units remaining uninhabitable. Further, "[m]ajor bui lding

                                                                       A-5879-17T2
                                     23
systems including . . . the roof and exterior wall assemblies remain[ed] damaged,

and the Borrower ha[d] failed to fund an estimated $11 million of repair and

rehabilitation work required to restore the building to its pre-casualty

condition." In addition, MTTC claimed that "[a]s a result of extraordinary legal

costs resulting from . . . litigation with the City and defaulting limited partners

of the MBT II partnership, together with the costs resulting from the Superstorm

Sandy property insurance loss claim, MBT II [was] woefully and inadequately

capitalized." MTTC alleged that the failure to keep the building in good repair

and to remain adequately capitalized were events of default by MBT II. MTTC

sought a judgment directing that it be paid the amounts due, that the project be

sold to satisfy the bondholders, and that it be granted possession of the premises.

      In March 2015, the HMFA wrote to the Internal Revenue Service ("IRS")

notifying the IRS that MTTC's foreclosure action "may constitute a 'planned

foreclosure' or 'an arrangement . . . a purpose of which is to terminate' the low

income housing extended use period" under 26 U.S.C. § 42(h)(6)(E)(i)(I). No

action was taken by the United States Treasury Secretary, however, in response

to that letter alleging an improper motivation for the foreclosure.

                                                                           A-5879-17T2
                                       24
      Return of the Order to Show Cause

      In February 2015 and May 2015, a Chancery Division judge 15 heard oral

argument on the Litigating Tenants' receivership application. The judge found

the building was eligible for receivership under N.J.S.A. 2A:42-117(b).

However, exercising the "discretion which [he was] satisfied the statute affords,

[he did] not appoint a receiver yet." The judge entered an order on June 5, 2015,

denying the OTSC and requiring MBT II to file with the court "a specific plan

of how to address physical building conditions reported to the Court by the

Plaintiffs."

      Soon thereafter, Vincent Mancini, the architect for Marina Bay Towers,

submitted a certification to the court stating that he had reviewed the work done

to address the building and fire code violations that had been alleged by the DCA

and the City's Bureau of Fire Prevention. Mancini certified that the work was

substantially complete. He also certified that there were no conditions "that

pose[d] an imminent risk to the health and safety of any of the tenants."

      Efforts in the Litigation to Formulate Plans to Revive the Project

      At a case management conference in late July 2015, PAC Capital

15
    We shall refer to this judge, who was later succeeded on the case when he
retired, as the "first Chancery Division judge."
                                                                            A-5879-17T2
                                      25
submitted to the court a "long-term plan." 16 The attorney for PAC Capital

explained that the plan submitted went beyond what the judge had ordered , and

was a "two-phase [plan] which, in the second phase, propose[d] an additional

affordable building with 129 affordable units." 17 Because of the "scope of the

plan," the parties agreed to give the DCA additional time to review it. A hearing

was set for September 2015 before a second Chancery Division judge. 18 A

second amended petition for receivership was filed on August 22, 2015. The

parties thereafter engaged in mediation, although no global agreement among

all parties was achieved.

        In February 2016, MTTC moved for summary judgment, requesting an

order approving the "financial restructuring capitalization plan." The judge

declined summary relief, finding that a plenary hearing would be necessary. He

16
   The July 2015 version of the plan has not been provided in the record. The
plan that is a subject of this appeal was prepared in the fall of 2015 and was
submitted to the trial court in February 2016.
17
   In its brief, MBT II describes the two-phase plan as "Phase I being the existing
building . . . with 91 affordable units and Phase II being a new inclusionary
development on the northern portion of the property which would provide [an]
additional 50 units such that, all totaled, the property would restore the 141
damaged affordable rental units." It is unclear whether MBT II is referring to
the same plan submitted to the court in July 2015.
18
     The first Chancery Division judge retired at the end of July 2015.
                                                                           A-5879-17T2
                                        26
denied the renewed motion for a receiver.

      At a case management conference on July 13, 2016, counsel for the DCA

represented to the court that it had an expert preparing a remediation plan . The

court consequently scheduled a hearing to hear testimony from witnesses

regarding the two plans. 19

      The plenary hearings commenced on October 25, 2016. At the outset of

the proceedings, the second Chancery Division judge denied the DCA's last-

minute request to postpone the hearing. The judge also denied the Litigating

Tenants' application for a receiver "because there's no money to pay a receiver."

He explained:

            This is a financially non-viable situation.
            Receiverships require money. There is not enough
            money to fix the building and to do anything with a
            receiver. A receivership can be done in a viable
            building where the rental income would pay the
            receiver. In this case, in this situation it’s 148-unit
            complex, there’s 50 units or so which are rented
            because of the unrentability of the rest of the units.

            There would be no rental stream for a receiver to be
            appointed in this case. I don’t know what the benefit of
            it [would be]. I don’t think there would be anything. I

19
   The DCA plan has not been provided in the record and there was no testimony
regarding the plan at the plenary hearings. Cocoziello testified that there was a
DCA plan that kept the rent restrictions on all units and did not pay off any
existing debt. He asserted the DCA plan unfairly "would wipe out [his] interest
with no accountability for it."
                                                                         A-5879-17T2
                                      27
             think it would be a detriment to the tenants.

      The judge noted that plaintiffs were the only ones who had "come forward

with a solution," that they had "come up with dozens and dozens of scenarios,"

and that he was "uncertain as to . . . the sincerity of the State in what the St ate's

intentions [were]." The judge recognized that the State was "certainly . . . not

obligated to support anything, to give any more money to anybody else." The

judge further commented that "at the end of the day I don't think there's any

willingness by the DCA or the HMFA to do a thing to help this building." The

judge observed there was a "vital public interest" involved in providing low-

income senior housing, and believed that any further delay of the case was

"against [the] public policy of the State."

      Testimony of Cocoziello and Other Witnesses

      The trial court held fourteen intermittent days of proceedings and

hearings, spanning from October 2016 to December 2017. During those

proceedings, the court heard testimony from several witnesses.

      The main witness was Cocoziello, the key individual who spearheaded the

building and development of the housing project. We need not detail here all

facets of his extensive testimony, which is familiar to the parties, but we will

highlight certain portions.

                                                                              A-5879-17T2
                                        28
      Cocoziello traced the purchase of the site by Beach Creek in 1987 to the

project's status as of the time of the plenary hearings nearly twenty years later.

He testified the project was initially intended to be developed as market-rate

housing. That plan was scrapped, however, when the real estate market crashed

in the early 1990s. Cocoziello decided to proceed instead with a project to create

rental housing for low-income senior citizens.

      Cocoziello described the many complicated transactions and financing

arrangements that enabled the project to be constructed. Among other things,

he discussed the $14.1 million in LIHTCs issued by the HMFA, the $1.47

million in additional financing from the DCA’s Balanced Housing Program, and

the refinancing plan that resulted in the issuance of the $7.4 million in ECIA

bonds.

      According to Cocoziello, most of the foundation work for the building

was "basically destroyed" in September 1999 by Hurricane Floyd, causing a

"huge delay" and cost overruns. Thereafter, problems were encountered with

the steel and concrete modules used to construct the building, which "triggered

a series of water infiltrations and problems with the building that were . . .

horrendous." Litigation with the manufacturer of the modules ensued and was

eventually settled. It cost an additional $14 million, or double the budget, to fix

                                                                           A-5879-17T2
                                       29
the problems and complete the construction. Approximately $10 million in

standby financing was obtained from Ocwen Bank, an affiliate of MBT's limited

partner investor, and CURDC loaned $1.6 million to the project to cover the cost

overruns.

      Cocoziello obtained a private letter ruling from the IRS that the

rehabilitation costs could be aggregated as a fictional separate building in order

to qualify for additional LIHTCs. Cocoziello then assembled the refinancing

plan that resulted in the issuance of the ECIA Bonds and the allocation of the

4% LIHTCs. The proceeds from the ECIA Bonds were used, in part, to pay off

the Ocwen debt.

      According to Cocoziello, the building was approximately 96% occupied

in 2005 and 2006. The occupancy rate dropped in 2007 and 2008 to between

88% and 92%, and dropped further between 2009 and 2012 to approximately

85%. Cocoziello blamed the drop in occupancy on litigation with the City,

which had drained resources to upkeep the building, and also the 2007-2008

housing market "melt-down." Occupancy continued to fall after 2012. By the

end of 2015, the building was only 50% occupied.

      Following Superstorm Sandy, substantial repairs to the building were

funded by PAC Capital. The roof had been severely damaged by the storm, and

                                                                          A-5879-17T2
                                       30
the units and common areas were infiltrated by water.

        Cocoziello explained that the Restructuring Plan 20 submitted to the trial

court under Section 116 of the CIAL reduced the number of units in the building

from 143 to 132. Two staff units were included in the current 143 units, which

would be eliminated under the Plan, so the number of units available for rent

would decrease by nine units.

        As described by Cocoziello, the Restructuring Plan contained two

alternative scenarios.    The first ("Scenario A") kept 100% of the units as

affordable housing units and was dependent on receiving funds from the

insurance litigation or state or federal subsidy funds. Under th e alternative

scenario ("Scenario B"), ninety-one units would remain low- and moderate-

income senior housing rental units, while forty-one units would become market-

rate, age-restricted units. The market-rate units would be for sale rather than for

rent. The affordability restrictions for the ninety-one units under Scenario B

would be protected "[p]ursuant to a covenant that would be recorded against the

title of the property."

        Cocoziello believed that the Restructuring Plan would result in the ability

to secure financing of the $11 million in additional funds needed to rehabilitate

20
     The State refers to this plan as the "Market Rate Plan."
                                                                           A-5879-17T2
                                        31
the building. Under both scenarios, there would be no change to the rent

structure for the existing tenants. However, occupancy and rent for new tenants

in the rent-restricted units going forward would be based on a formula of 80%

of area median income ("AMI"). 21 The Plan would move the exercise room,

which would be enlarged and modernized, from the seventh floor to a new eighth

floor that would be added to the building. A pool and lounging area would also

be added on the roof.

      According to Cocoziello, under the Restructuring Plan, the net monthly

rent chargeable for a one-bedroom unit at 80% AMI, after subtracting a utility

allowance, was $1053. He explained that the $1053 rent was "a potential

collection . . . it's not what the market would bear." He agreed that the market

study included in the Restructuring Plan estimated that achievable market rent

for a one-bedroom unit was $875 in February 2016, and that, under Scenario B,

the Plan assumed rents for the first six years that were less than $1053.

      Cocoziello explained that MBT III would take title to the property under

the Restructuring Plan. The Plan anticipates securing construction financing of

21
   In his testimony, Cocoziello used "AMI" to refer to the income restrictions
on the rent-restricted units, rather than "AMGI," the term used in the HMFA
Deed, which comes from the definition of a "qualified low-income housing
project" in 26 U.S.C. § 42(g)(1). The trial court also refers to AMI in its order.
                                                                            A-5879-17T2
                                       32
$6,950,000, based on the projected sales of the market-rate units, which is

expected to generate $12.2 million in income. The Plan also anticipates securing

a "five-year amortizing renewable term loan" for $4,950,000 based on the belief

that the ninety-one restructured affordable units could support that amount of

indebtedness. MBT III would assume the ECIA Bond indebtedness, and PAC

Capital would agree to "resize[] that indebtedness," which Cocoziello claimed

was $11 or $12 million including interest, to $7 million, and to subordinate it to

the new financing. MBT III would also assume $2 million owed on the loan to

CURDC and $500,000 in fees owed to Rubicon. 22 Cocoziello would also invest

$2 million in new cash. 23

      According to Cocoziello, absent a further subsidy from the State, "[t]here

[was] no way to support the kind of debt that [his] professionals [were] telling

[him was] required to repair [the] building" without including market -rate units.

In addition, the affordable units rented to new tenants were proposed at 80%

AMI rents, rather than 50% AMI rents, because the higher rental income "would

22
   The Plan does not identify which Rubicon entity, Rubicon Development, LLC
or Rubicon Properties, LLC, is owed the fees.
23
   It is unclear whether this cash would be provided by Cocoziello or one of the
entities he controls. The additional investment is identified on the Restructuring
Plan simply as "Dev. Note/Other Equity."
                                                                          A-5879-17T2
                                       33
help substantially convince a bank to lend . . . the kind of money that's needed

to fix the building."

      The market-rate units were to be located in areas of the building that

would "command the most dollars." Cocoziello claimed the proposed amenities

were needed to be competitive with other housing projects. He asserted that the

Plan was "the best we can do."

      After MBT II defaulted on the ECIA Bonds, Cocoziello directed MTTC

"to file a complaint and foreclosure with the goal of restructuring the

properties." He denied that the foreclosure was filed to eliminate affordability

restrictions.   He contended that when the complaint was filed, there were

ongoing negotiations with the HMFA to restructure the financing of the building

as 100% affordable housing. However, Cocoziello admitted at the plenary

hearing that the goal was now to remove the original affordability restrictions.

Those restrictions would be replaced with revised restrictions under the Plan

which included some market-rate units. He maintained that "[t]he purpose of

the foreclosure was to clear title so that new debt financing could be secured to

provide as many affordable units as financial[ly] feasible ."

      Apart from Cocoziello, the trial court also considered testimony from

Anthony Cuccia, a financial expert who helped Cocoziello prepare the Plan;

                                                                         A-5879-17T2
                                      34
Urban, who explained the HMFA’s role in the project; Joseph Grandizio, who

supervised the general maintenance of the building; Richard Montemore, the

administrator of the DCA’s Balanced Housing Program; and Craig Domalewski,

an attorney for PAC Capital who assisted in exploring financing options for the

project.

      The Trial Court's May 22, 2018 Decision

      After considering this testimony and voluminous exhibits, the trial court

issued its forty-one-page written opinion on May 22, 2018. The court also

issued a detailed companion order that same day, several portions of which are

now challenged on this appeal.

      As a threshold matter, the trial court determined that the Responding

Defendants24 had failed to establish a lack of adversity between the parties to

the foreclosure action sufficient to prevent the court from adjudicating the

matter. It ruled that defendants were barred by res judicata from relitigating the

adversity issue because the court had previously addressed it in Royal Tax Lien

24
   The court used the term "Responding Defendants" to refer, collectively, to
the City, DCA, HMFA and Litigating Tenants.

                                                                          A-5879-17T2
                                       35
Services, LLC v. Beach Creek Marina.25 The court was also "independently

satisfied" that the parties to the foreclosure action were sufficiently adverse.

      Turning to the merits, the court found that "[d]ue to the storm damage

caused by Hurricane Sandy," MBT II was in default of its obligation under the

ECIA Mortgage to "keep the Property in good condition and order and in a

rentable and tenantable state of repair." That default constituted a breach of the

ECIA Loan Agreement and the Indenture. Because the cure periods had expired,

the court found that foreclosure could be entered.

      The court then addressed the effect of the foreclosure on the HMFA and

DCA affordability controls. For starters, the court observed "it [was] critical to

first identify the priority of liens on the project as a foreclosure [would] only

divest subordinate interests."    The court found that, "given the actual and

statutory notice given to Responding Defendants there was an agreement

between the parties for the ECIA Bond Mortgage to be in a first lien position."

However, "even in the absence of an express agreement, under the doctrine of

equitable subrogation, [it] ha[d] the power to prioritize the ECIA Bond

25
   The court was referring to an unpublished Law Division decision filed by the
first Chancery Division judge on July 16, 2013, in a foreclosure action filed by
Royal Tax Lien Services LLC, which had purchased tax sale certificates issued
by the City of North Wildwood against MBT II and Beach Creek.

                                                                           A-5879-17T2
                                       36
Mortgage against competing liens on the property."

         Most pertinent to the present appeal, the court ruled that the federal and

state affordability controls specified in the HMFA and DCA transactions were

terminated upon the entry of foreclosure, pursuant to 26 U.S.C. § 42 (h)(6)(E)(i).

The court recognized that the AHA stated that the affordability controls could

not be terminated by a judgment of foreclosure. However, the court determined

that the language in the AHA conflicted with the Balanced Housing Program

rules, specifically N.J.A.C. 5:43-4.1 and N.J.A.C. 5:80-26.1, which excluded

units qualifying for the federal LIHTC program from compliance with th ose

rules.

         The court specifically found that, because the DCA regulations "expressly

defer[red] to federal law in situations involving a LIHTC property," 26 U.S.C.

§ 42 (h)(6)(E)(i) governed "the outcome of the affordability controls upon the

entry of foreclosure." In addition, the court noted that the HMFA Deed stated

that it was governed by Section 42 of the IRC, and that, pursuant to Section 42,

the affordability restrictions would terminate upon foreclosure.

         The court rejected the Responding Defendants' argument that the

affordability restrictions should not be terminated because the foreclosure had

been planned by Cocoziello and related entities. The court found that, under 26

                                                                           A-5879-17T2
                                         37
U.S.C. § 42 (h)(6)(E)(i), "only the Secretary of the Treasury may intervene to

prevent a foreclosure if there is a belief that the foreclosure is planned or

arranged with the goal of terminat[ing] affordability restrictions." The Secretary

has not done so.

      To remedy this fiscally-distressed situation, the court approved the

Restructuring Plan proposed by PAC Capital.           The court found the Plan

"offer[ed] the only option presently available to the Court to achieve the full

renovation of the property and rehabilitation of this important public resource. "

The court declared that the "Restructuring Plan [was] in compliance with

Section 116 of the CIAL." The court reasoned that Section 116 gave it broad

equitable powers to deal with properties in financial distress. As the court noted,

those powers "include[d] the ability to eliminate or reduce the scope of the deed

restrictions on the units, change the affordability requirements of the units,

transfer rights to a new entity and/or permit the new entity to sell or lease a

certain number of units."

      In the court's assessment, "the only way to protect the interest of PAC

Capital as bondholder while simultaneously maximizing affordable housing

[was] to order acquiescence of all parties to the proposed Restructuring Plan as

monitored as set forth [in the court's opinion]." Further, the court found no

                                                                           A-5879-17T2
                                       38
evidence that Restructuring Plan and foreclosure had been "proposed in bad

faith."

      The court found that a Special Master should be appointed to oversee the

execution of the Restructuring Plan. It denied the Litigating Tenants' request

for the appointment of a receiver.

      The Court's Order

      The court's companion order approved the Restructuring Plan "as may be

modified or amended by the Special Master" and approved by the court. The

order described the responsibilities of the Special Master to encompass: (a)

review and modify the Restructuring Plan concerning the scope and cost of

repairs and "evaluate projected rental incomes at 50%, 60% and 70% AMI to

see if more affordable units at lower rents could be preserved"; (b) monitor

timelines; (c) ensure the property remains habitable for current tenants; (d)

ensure any changes to the scope of work are reasonable and justified; (e) review

income and expenses to ensure available funds are properly spent; (f) review

complaints regarding the rehabilitation of the property; and (g) report progress

semi-annually to the court.

      The court further ordered that

            [a]ll restrictions and agreements establishing and
            governing restrictions on affordability and rents

                                                                        A-5879-17T2
                                       39
              affecting or recorded against the title of the Project
              . . . are hereby abrogated as of the date the Final
              Judgment of Foreclosure is entered, including but not
              limited to the [HMFA Deed, the 2005 amendment to the
              HMFA Deed, the DCA Deed, the AHA, and the DCA
              Mortgage].

      The court annexed a new Deed Restriction to the order, and required that,

"[a]s of the date the Final Judgment of Foreclosure is entered, . . . [it] shall [be]

duly executed and promptly filed for recording with the Cape May County

Clerk." The Deed Restriction recited that certain units had to be rented to "low-

or moderate-income persons comprising a household . . . fifty-five (55) years of

age or older." It also specified that the number of rent–restricted units "shall not

number less than the elective minimum set-aside provided pursuant to 26 U.S.C.

§ 142 (d)."

      The court further ordered that the PILOT Agreement between the City and

MBT II "shall be assigned to MBT III or other successor urban renewal entity. "

That agreement shall remain in full force and effect for units that are part of the

Unrestricted Project Portion 26 until the units are sold at market rate and written

notice of the relinquishment of tax-exempt status is provided to the City. Units

26
   The court order indicates that this term is defined in the Restructuring Plan.
However, the Plan included in the appellate record does not define the term.
Presumably, the term refers to units that will be converted to market rate units.

                                                                             A-5879-17T2
                                        40
that are part of the Affordable Portion Project 27 "shall remain subject to the

[PILOT] Agreement for the term thereof."

      The court's order further established the priority of the mortgage liens on

the property as follows:    the ECIA Mortgage first, the CURDC Mortgage

second, and the DCA Mortgage third.

      The order established deadlines for filing necessary applications and

documents related to construction. It mandated that construction begin within

six months after receipt of governmental approvals and conclude within thirty-

six months of "the Closing." 28 The court required any proceeds or damage

awards received from the pending insurance litigation, net of attorneys' fees, to

be used to fund the rehabilitation and repair costs. The receivership action was

dismissed.

      On June 21, 2018 the court ordered MTTC to "submit an appropriate

application for final judgment of foreclosure and sale consistent with [his]

[o]pinion for the Court to consider." To date, no final judgment of foreclosure

27
    The court order indicates this term is defined in the Restructuring Plan.
However, the Plan provided in the record does not define the term. Presumably,
this refers to units that will remain income restricted.
28
   The order does not specify but perhaps is referring to the closing of financing
for the project.

                                                                          A-5879-17T2
                                       41
has been entered.

      The State's Appeal and the Court's Denial of a Stay

      The trial court denied the DCA's motion for a stay of its May 22, 20 18

decision pending appeal. The DCA and the HMFA then filed the present appeal.

      As we have already noted, the main focus of the State agencies' appeal is

on the trial court's elimination of the affordability housing restrictions, and its

approval of a Plan that scales back those restrictions to allow for some market-

rate units within the project.

                                        II.

      The question of whether the HMFA and DCA affordability controls are

eliminated by a judgment of foreclosure requires an interpretation of the federal

law, the UHAC and the DCA's associated Balanced Housing Program rules, and

the various contract documents. Our review of this question of law is de novo.

Kieffer v. Best Buy, 205 N.J. 213, 222 (2011).

      The LIHTCs

      "First enacted in 1986 (Pub. L. No. 99–514, 100 Stat. 2189), 26 U.S.C. §

42 provides an incentive for the construction and rehabilitation of low income

rental housing by lowering its overall cost through the use of tax credits to

developers and owners of qualified rental projects." In re Adoption of 2003 Low

                                                                           A-5879-17T2
                                       42
Income Housing Tax Credit Qualified Allocation Plan ("In re Adoption of 2003

QAP"), 369 N.J. Super. 2, 11 (App. Div. 2004) (citing David Phillip Cohen,

Improving the Supply of Affordable Housing: The Role of the Low–Income

Housing Tax Credit, 6 J.L. & Pol'y 537, 541 (1998)).

       "To qualify [for LIHTCs], a project may set aside 20% or more of the

building's residential units to renters whose income is 50% or less than the area's

median gro[ss] income . . . , or set aside at least 40% or more of its units to

tenants whose incomes are no greater than 60% of the area's median gross

income . . . ." Id. at 12; see 26 U.S.C. § 42(g)(1). In addition, rents must be

restricted to no more than thirty percent of the income limitation for each unit.

26 U.S.C. § 42(g)(2)(A); see Lance Bocarsly & Rachel Rosner, The Low Income

Housing Tax Credit: A Valuable Tool for Financing the Development of

Affordable Housing, 33 No. 1 Prac. Real Est. Law. 29, 32 (Jan. 2017).

       "The [LIHTC] program is administered by a state's housing credit agency,

26 U.S.C. § 42(m), which in New Jersey is the HMFA." In re Adoption of 2003

QAP, 369 N.J. Super. at 12. The HMFA is therefore responsible for allocating

LIHTCs in this State to eligible projects. Id. at 12-14; 26 U.S.C. § 42(h)(3),

(m).

       Once awarded, LIHTCs may be claimed over a ten-year "credit period,"

                                                                           A-5879-17T2
                                       43
26 U.S.C. § 42(a), beginning "the taxable year in which the building is placed

in service, or . . . the succeeding taxable year," if the taxpayer so elects. 26

U.S.C. § 42(f)(1). LIHTCs are subject to recapture by the IRS during the

"compliance period," which is the fifteen years beginning the first year of the

credit period. Bocarsly & Rosner, 33 No. 1 Prac. Real Est. Law. at 32; 26 U.S.C.

§ 42(i)(1), (j)(1).

      LIHTCs may not be claimed for any taxable year "unless an extended low-

income housing commitment is in effect as of the end of such taxable year." 26

U.S.C. § 42(h)(6)(A); accord Carter v. Md. Mgmt. Co., 377 Md. 596, 604 (Md.

2003). An "extended low-income housing commitment" is defined as

             any agreement between the taxpayer and the housing
             credit agency –

                      (i) which requires that the applicable fraction [29]
                      . . . for the building for each taxable year in the
                      extended use period will not be less than the
                      applicable fraction specified in such agreement .
                      ..,

                      (ii) which allows individuals who meet the
                      income limitation applicable to the building . . .
                      the right to enforce in any State court the

29
    The "applicable fraction" is the fraction of the building dedicated to low-
income housing based on either the number of low-income units as compared to
total residential rental units or the floor space of the low-income units compared
to the total floor space of the residential units in the building. 26 U.S.C. § 42
(c)(1)(B).
                                                                             A-5879-17T2
                                          44
                   requirement and prohibitions of clause (i),

                          ....

                    (v) which is binding on all successors of the
                   taxpayer, and

                   (vi) which, with respect to the property, is
                   recorded pursuant to State law as a restrictive
                   covenant.

            [26 U.S.C. § 42(h)(6)(B).]

The "extended use period" begins on the first day of the compliance period . It

ends the later of fifteen years after the end of the compliance period or the date

specified by the housing credit agency in the extended low-income housing

commitment. 26 U.S.C. § 42(h)(6)(D).

      Early Termination

      A key provision in the federal law concerning the LIHTCs allows for early

termination of the extended use period. The provision states that "[t]he extended

use period for any building shall terminate . . . on the date the building is

acquired by foreclosure (or instrument in lieu of foreclosure) unless the

Secretary determines that such acquisition is part of an arrangement with the

taxpayer a purpose of which is to terminate such period . . . ." 26 U.S.C. §

42(h)(6)(E)(i)(I). The federal statute does not directly terminate the rent and

occupancy restrictions but, rather, terminates the time period that the restrictions

                                                                            A-5879-17T2
                                        45
must be imposed. 30

        The Extended Compliance Period

        The HMFA Deed entered into by Beach Creek, MBT and the HMFA in

December 2002, comprises the "extended low-income housing commitment"

required by 26 U.S.C. § 42(h)(6)(A), (B). The HMFA Deed stated that MBT

had irrevocably elected the federal set-aside that required "20% . . . or more of

the residential units [to be] both rent restricted and occupied by individuals

whose income is 50% or less of . . . AMGI." However, the applicable fraction

was 100%, meaning that MBT agreed at the outset to keep the federal rent and

occupancy restrictions in place for all residential units in Marina Bay Towers

for the term of the agreement.

        Because MBT had elected to increase the compliance period to improve

the competitive score of its application for tax credits, the HMFA Deed also

provided for an "extended compliance period," which increased the fifteen -year

compliance period defined in 26 U.S.C. § 42(i)(1) by an additional fifteen years.

The "extended use period," as set forth in 26 U.S.C. § 42(h)(6)(D), encompassed

another fifteen years beyond the extended compliance period, for a grand total

of forty-five years.      Therefore, the HMFA Deed provided that it "shall

30
     The parties have not cited any case law interpreting this provision.
                                                                            A-5879-17T2
                                        46
extinguish at the close of the [forty-fifth] year after the beginning of the

compliance period unless terminated by foreclosure or instrument in lieu of

foreclosure."

      This Foreclosure Action and Its Impact Upon the HMFA Deed

      Under the plain terms of 26 U.S.C. § 42(h)(6)(E)(i)(I), the extended use

period and the rent and occupancy restrictions in the HMFA Deed will

necessarily terminate on the date the building is acquired by foreclosure,

regardless of whether the Restructuring Plan is eventually implemented. The

trial court correctly recognized this.

      The State argues that 26 U.S.C. § 42(h)(6)(E)(i)(I) should not apply,

because the LIHTCs were partially recaptured. That argument is not supported

by the language of the statute. The State cites as authority to Nordbye v.

BRCP/GM Ellington, 266 P.3d 92, 104 (Or. Ct. App. Oct. 26, 2011). However,

that Oregon opinion is inapposite, as neither a foreclosure nor recapture were at

issue in that case. Further, as the trial court correctly found, "recapture allows

for the return of claimed, but unearned, LIHTC credits" and does not "result[]

in the expulsion from the LIHTC program." See 26 U.S.C. § 42(j).

      For these reasons compelled by federal law, we therefore affirm the trial

court's order expunging the HMFA Deed, and its associated affordability

                                                                          A-5879-17T2
                                         47
restrictions, as of the date that a final judgment of foreclosure is entered.

      Foreclosure's Impact on The DCA Affordability Controls

      Although the DCA awarded the Balanced Housing Program funds to the

City for the benefit of MBT in September 1997, the AHA and DCA Deed were

not executed until nine years later in November 2006. The DCA Deed required

its terms to be interpreted in accordance with regulations promulgated under the

FHA, which were incorporated by reference. It provided that, in the event of

any conflict, the FHA and the associated regulations "shall govern."

      Inapplicability of the Uniform Housing Affordability Controls

      At the time that the DCA Deed and the AHA were executed in 2006, the

terms of the Uniform Housing Affordability Controls ("UHAC"), N.J.A.C. 5:80-

26.1 to -26.26, were in place. 31 Since its adoption in 2001 the UHAC has

31
   As explained by the court in In re Adoption of Uniform Housing Affordability
Controls, 390 N.J. Super. 89, 95-96 (App. Div. 2007) (citations omitted),
initially

            [t]hree agencies, COAH, the [DCA], and the HMFA
            each adopted distinct sets of rules establishing controls
            on the continuing affordability of housing constructed
            pursuant to the FHA. To remedy inconsistent and
            overlapping aspects of those regulations, in 2001, the
            HMFA repealed its rules and replaced them with the
            [UHAC], which were also adopted by COAH and by
            the DCA for its Balanced Housing [P]rogram.
                                                                            A-5879-17T2
                                        48
specified that the rules, which provide for "the establishment and administration

of affordability controls on restricted units that . . . receive funding . . . under

[DCA's] Balanced Housing Program[,] . . . do not apply to units qualifying for

the Federal Low-Income Housing Tax Credit under Section 42 of the [IRC]."

(Emphasis added). N.J.A.C. 5:80-26.1; 33 N.J.R. 3432(b), 3437 (Oct. 1, 2001).

      The Federal Standards Statement when the UHAC was issued in 2001,

stated that "[a]s adopted, these rules do not contain any standards or

requirements that exceed standards or requirements imposed by Federal law.

The Uniform Controls are designed to implement a State law mandate, the

[FHA], and to apply in cases where there are no controlling Federal standards."

33 N.J.R. 3437.

      The UHAC includes detailed restrictions on rents and tenant income

eligibility. N.J.A.C. 5:80-26.12 to -26.13. However, as explicitly stated in

N.J.A.C. 5:80-26.1 and correctly found by the trial court, because the project

qualified for federal LIHTCs, the UHAC does not apply to this project.

      The AHA and Other Affordability Controls

      Therefore, we must next consider: (1) whether, in the absence of the

application of the UHAC, affordability controls nevertheless could be imposed

by the agreements entered into by the parties, including the AHA; and (2)

                                                                            A-5879-17T2
                                        49
whether 26 U.S.C. § 42 prevents parties who received both Balanced Housing

Program funds and LIHTCs from contracting to maintain affordability controls

in the event of foreclosure.

      As we have noted, the AHA the State entered into with MBT contained a

provision stating that it "shall not be terminated in the event of judgment of

[f]oreclosure." It also provided that "[t]he terms of this Agreement shall be

interpreted so as to avoid financial speculation or circumvention of the purposes

of the [FHA] for the duration of this Agreement and to ensure, to the greatest

extent possible, that the . . . rents of designated Affordable Housing units remain

affordable to Low and Moderate Income-Eligible Households as defined

herein." In a superiority clause, the AHA further provided that MBT "warrants

that no other Agreement with provisions contradictory of, or, in opposition to,

the provisions hereof has been or will be executed, and that, in any event, the

requirements of this Agreement are paramount and controlling as to the rights

and obligations between and among [MBT], the [DCA], and their respective

successors."

      When the program funds were awarded to MBT in 1997, the program rules

then in effect required the execution and recording of an Affordable Housing

Agreement, whose provisions constituted restrictive covenants running with the

                                                                           A-5879-17T2
                                       50
land. 28 N.J.R. 6(a), 17 (Jan. 2, 1996). Even though the UHAC was adopted

by the HMFA in 2001, the Balanced Housing Program rules were not amended

to eliminate the affordability control provisions included therein, including the

requirement to execute an Affordable Housing Agreement, because they were

superseded by the UHAC, until 2007. 33 N.J.R. 3432(b) (Oct. 1, 2001); 38

N.J.R. 3715; 39 N.J.R. 2517(a) (July 2, 2007). The amendment included a new

provision, which stated that "all units receiving funding from Balanced Housing

shall be subject to the [UHAC]" except "[u]nits excluded from the controls

pursuant to N.J.A.C. 5:80-26.1." 38 N.J.R. 3724; 39 N.J.R. 2529; N.J.A.C. 5:43-

4.1(a)(1).

      Thus, when the AHA in this case was executed in November 2006, the

Balanced Housing Program rules still required execution of an Affordable

Housing Agreement, even though the rule proposal eliminating that requirement

had been published. 32 In addition, N.J.A.C. 5:43-4.1(a), the provision relied on

by the trial court to find that the language of the AHA conflicted with the

Balanced Housing Program rules, did not exist when the AHA was executed.

32
   Although the UHAC does not require execution of an Affordable Housing
Agreement, it does contain a requirement that properties that include affordable
rental units record a deed restriction that "shall have priority over all mortgages
on the property." N.J.A.C. 5:80-26.11(c); see Appendix E to N.J.A.C. 5:80-26.
                                                                           A-5879-17T2
                                       51
      We discern no reason why the agreed-upon provisions in the various

Balanced Housing Program documents, including the Third-Party Agreement,

DCA Note, DCA Mortgage, AHMSA, DCA Deed and the AHA, could not be

enforced in this case as a contractual matter, if the trial court had deemed that

appropriate.   The Balanced Housing Program is a separate state source of

funding. Nothing in 26 U.S.C. § 42 appears to prohibit a state from imposing

affordability controls on LIHTC-recipient projects that are also receiving state

funds.In addition, the ECIA Mortgage provided that it was "subject and

subordinate to all existing and future easements, deed restrictions, [and]

covenants running with the land . . . relating to the Property and to its purpose

as low income senior citizen housing." It specifically stated that "the lien

created by this Mortgage shall be subject to the provisions of [the DCA Deed],"

although it referred to a deed dated July 15, 2005, and the deed in the record was

executed November 27, 2006.

      Regardless of when the DCA Deed and AHA were executed, the ECIA

Mortgage provided that it was subordinate to "all existing and future . . . deed

restrictions." Thus, the ECIA Mortgage was subordinate to the restrictions

contained in the AHA, the DCA Deed and the DCA Mortgage, and those

contractual restrictions would, therefore, survive foreclosure by PAC Capital on

                                                                          A-5879-17T2
                                       52
the ECIA Mortgage, subject to the trial court's ultimate authority and zone of

discretion we discuss, infra.

      No Implied Preemption

      MTTC's argument that 26 U.S.C. § 42 preempts the provisions in the AHA

is unconvincing. Express preemption does not exist in 26 U.S.C. § 42. Absent

such express preemption, courts may consider whether preemption is implied.

            There are two forms of implied preemption—field
            preemption and conflict preemption. Field preemption
            applies where the scheme of federal regulation is so
            pervasive as to make reasonable the inference that
            Congress left no room for the States to supplement it.
            Conflict preemption applies where compliance with
            both federal and state regulations is a physical
            impossibility, or where state law stands as an obstacle
            to the accomplishment and execution of the full
            purposes and objectives of Congress.

            [In re Reglan Litigation, 226 N.J. 315, 328-29 (2016)
            (citations and quotations omitted).]

      Neither type of implied preemption applies here. It is not impossible for

the extended use period to terminate as to the federal LIHTC program, while

affordability controls could remain in place in connection with funds separately

provided to the project by the State's Balanced Housing Program.

      MTTC claims, without any supporting legal citations, that imposing

independent affordability requirements would undermine the LIHTC program.

                                                                        A-5879-17T2
                                      53
We disagree. The purpose of the federal program is to provide tax credits that

can be sold to investors. In re Adoption of 2003 QAP, 369 N.J. Super. at 11.

No evidence has been cited from the record showing that the inclusion of a

provision requiring State affordability controls to survive foreclosure would

negatively affect the ability to sell LIHTCs to investors.

      The trial court consequently erred in determining that the DCA

affordability controls would be terminated automatically by a judgment of

foreclosure. However, as we discus, infra, the court had other authority to

terminate or revise those restrictions in its discretion.

                                        III.

      The Court's Exercise of Authority Under Section 116 of the CIAL

      The State argues that the court improperly relied on Section 116 of the

CIAL, N.J.S.A. 40:37A-116, to extinguish the DCA Mortgage, DCA Deed, and

AHA. The State contends that the statute "authorizes sale of the property free

[solely] from the limitations of the CIAL, not the limitations imposed by any

other Act, agency, or body." The State maintains that "[n]othing in the CIAL or

case law authorized the trial court to modify deed restrictions imposed by any

other governmental entity."

      The State further argues that, even if the CIAL could be relied on to

                                                                        A-5879-17T2
                                        54
remove or alter the deed restrictions, before approving the foreclosure the trial

court failed to make, and the record does not support, certain required findings.

Those findings include that: (1) "the interest of the bondholder cannot otherwise

be adequately secured"; (2) "the relief sought is 'reasonable and proper'"; (3) the

"project would be sold to a 'qualified housing sponsor '"; and (4) "the

proceedings were brought in good faith." The State claims there is no evidence

that the proposed Restructuring Plan can be realistically financed and that

Cocoziello has "made decisions that were contrary to the interests of the

bondholder." In addition, MBT III, the proposed successor to MBT II, allegedly

is not a "qualified housing sponsor."

      The State further urges that the public interest is not served by the

Restructuring Plan because it reduces the overall supply of affordable housing.

The State contends that the trial court "improperly invoked unspecified equitable

powers under the CIAL to impose new 'affordable housing covenants.'" The

State maintains that "[t]hese new 'covenants' are unrelated to the HMFA or DCA

covenants and the laws and rules governing affordable housing" and "prov ide

no equivalent protections." The State argues that "the court made no findings

sufficient to support an exercise of such extraordinary equitable powers." The

City joins in these contentions.

                                                                           A-5879-17T2
                                        55
      The Litigating Tenants, meanwhile, argue that the rents on the remaining

ninety-one affordable units under the Restructuring Plan – whose occupancy

would be limited to persons earning 80% or less of AMI – would be "higher than

actual market rent, rendering the rent restrictions virtually meaningless." They

further maintain that the new Deed Restriction approved by the court, is

inconsistent with the Restructuring Plan, because it provides that "[t]he number

of Restricted Units during the Restricted Term shall not number less than the

elective minimum set-aside provided pursuant [to] 26 U.S.C. § 142(d)" and the

Restructuring Plan allegedly does not conform to the federal set-aside.

      The Litigating Tenants point out that the Deed Restriction "does not state

a specific term of years" and affords no protection to existing tenants in the event

of foreclosure. They claim that because Cocoziello exclusively controls whether

the ECIA and CURDC Mortgages will be satisfied or placed in default, "the

protections purportedly offered by the proposed deed restrictions are illusory."

In addition, they claim the Deed Restriction provides only "vague rights" to the

City to enforce the restrictions.

      The Litigating Tenants further argue that the trial court abused its

discretion by approving deed restrictions that "fail to provide meaningful, long -

term protection of any of the 142 Marina Bay Towers Units as affordable

                                                                            A-5879-17T2
                                        56
housing." They fault the trial court for "totally eliminating all restrictions and

substituting . . . clearly inadequate deed covenants," rather than "simply lifting

current restrictions off of a certain number of units."

      The Court's Powers Under Section 116

      The question of whether the trial court properly exercised powers granted

to it within the CIAL by N.J.S.A. 40:37A-116 is a two-part question involving

two different standards of review. The first question – what powers are granted

to the trial court by the statute – is a matter of statutory construction subject to

de novo review. Klawitter v. City of Trenton, 395 N.J. Super. 302, 318 (App.

Div. 2007). As to the second question, if the CIAL indeed affords discretion to

the trial court, then the court's decision must be reviewed for abuse of discretion.

Under this latter standard, "an appellate court should not substitute its own

judgment for that of the trial court, unless the trial court's ruling was so wide of

the mark that a manifest denial of justice resulted."     Hanisko v. Billy Casper

Golf Mgt., Inc., 437 N.J. Super. 349, 362 (App. Div. 2014) (quoting State v.

Brown, 170 N.J. 138, 147 (2001)).

      It is well settled that when interpreting a statute, the primary goal is to

give effect to the intent of the Legislature. State v. Lenihan, 219 N.J. 251, 262

(2014). "[T]he best indicator of that intent is the plain language chosen by the

                                                                            A-5879-17T2
                                        57
Legislature."   Ibid.   (quoting State v. Gandhi, 201 N.J. 161, 176 (2010)).

"'[W]ords and phrases shall be read and construed with their context, and shall,

unless inconsistent with the manifest intent of the legislature or unless another

or different meaning is expressly indicated, be given their generally accepted

meaning, according to the approved usage of the language.'" State v. Hupka,

203 N.J. 222, 232 (2010) (quoting N.J.S.A. 1:1-1).

       "If the statute is clear and unambiguous on its face and admits of only

one interpretation, [a court] need delve no deeper than the act's literal terms to

divine the Legislature's intent." State v. Butler, 89 N.J. 220, 226 (1982); accord

Gandhi, 201 N.J. at 180.       "A court may neither rewrite a plainly-written

enactment of the Legislature nor presume that the Legislature intended

something other than that expressed by way of the plain language." O'Connell

v. State, 171 N.J. 484, 488 (2002). "If the text, however, is susceptible to

different interpretations, the court considers extrinsic factors, such as the

statute's purpose, legislative history, and statutory context to ascertain the

legislature's intent." Twp. of Pennsauken v. Schad, 160 N.J. 156, 170 (1999).

      N.J.S.A. 40:37A-116, the key statutory provision that was relied on by the

trial court to approve the Restructuring Plan, states, in relevant part, that:

             Subject to the terms of any applicable agreement,
             contract or other instrument entered into or obtained

                                                                            A-5879-17T2
                                        58
            pursuant to section 23 of this act, [ 33 ] judgment of
            foreclosure shall not be entered unless the court to
            which application therefor is made shall be satisfied
            that the interest of the lienholder or holders cannot be
            adequately secured or safeguarded except by the sale of
            the property; and in such proceeding the court shall be
            authorized to make an order increasing the rental or
            carrying charges to be charged for the housing
            accommodations in the housing project involved in
            such foreclosure, or appoint a member of the authority
            or any officer of the municipality in which any tax
            exemption with respect to the projects provided, as a
            receiver of the property, or grant such other and further
            relief as may be reasonable and proper; and in the event
            of a foreclosure or other judicial sale, the property shall
            be sold only to a qualified housing sponsor which will
            manage, operate and maintain the project subject to the
            provisions of this act, unless the court shall find that the
            interest and principal on the obligations secured by the
            lien which is the subject of foreclosure cannot be earned
            under the limitations imposed by the provisions of this
            act and that the proceeding was brought in good faith,
            in which event the property may be sold free of
            limitations imposed by this act or subject to such
            limitations as the court may deem advisable to protect
            the public interest.

            [(Emphasis added) (footnotes omitted).]

      This provision was enacted by L. 1979, c. 275, which amended the CIAL

to "vest[] [county improvement authorities] with necessary powers to undertake,

33
   Section 23 of L. 1979, c. 275, authorized a county improvement authority to
obtain insurance or a guarantee as to the repayment of interest and/or principal
on any loan made under the act from any department or agency of the United
States. N.J.S.A. 40:37A-128.
                                                                           A-5879-17T2
                                       59
finance and operate housing projects and to redevelop property in connection

therewith." The Sponsor's Statement noted that the law was "modeled after the

statutes creating the Housing Finance Agency [L. 1967, c. 81] and the Mortgage

Finance Agency [L. 1970, c. 38]." Sponsor's Statement to A. 3430 (L. 1979, c.

275).

        The language in N.J.S.A. 40:37A-116 was taken verbatim from L. 1967,

c. 81, § 13, which was originally codified at N.J.S.A. 55:14J-13. That statute

was repealed by L. 1983, c. 530, which consolidated the Housing Finance

Agency and Mortgage Finance Agency and established the HMFA.                N.J.S.A.

55:14J-13 was replaced by N.J.S.A. 55:14K-10, which remains in place today

and contains language substantially identical to that in N.J.S.A. 40:37A-116.34

        N.J.S.A. 40:37A-116 thereby provides that a judgment of foreclosure in a

project subject to the CIAL cannot be entered unless a court is satisfied that the

interests of the bondholder cannot be adequately protected except thro ugh

foreclosure. In such a foreclosure proceeding, the court may: (1) increase the

rent charged for the units in the project; (2) appoint a receiver; or (3) "grant such

other and further relief as may be reasonable and proper." N.J.S.A. 40:37A-116.

34
    There is no case law interpreting N.J.S.A. 40:37A-116 or the HMFA
foreclosure provision. The legislative histories of the laws that are available to
us shed no light on these foreclosure provisions.
                                                                             A-5879-17T2
                                        60
      The Trial Court's Application of Section 116 to the Circumstances of This
      Case

      Although the State argues that the record contains no evidence that PAC

Capital's interests could be adequately protected only through the Restructuring

Plan, that argument misreads the statute. The relief provided under the statute

need only be "reasonable and proper" and, therefore, does not have to be the sole

potential remedy for protecting the bondholder's interests in the event of

foreclosure. In any event, the court did find that no other viable option had been

presented to it.

      As we have already noted, the trial court found that MBT II was in default

of its obligations under the ECIA Loan Agreement and the ECIA Mortgage

because it failed to fund the repairs necessary to rehabilitate the building. The

court specifically found that, in the wake of that default, the Restructuring Plan

was "the only option presently available to the Court to achieve the full

renovation of the property," and that "the only way to protect the interest of PAC

Capital as bondholder while simultaneously maximizing affordable housing

[was] to order acquiescence of all parties to the proposed Restructuring Plan."

      These findings are amply supported by the record and are sufficient under

the statute. The court reasonably found that no other viable plan to rehabilitate

the building had been presented, and there was no dispute that the building

                                                                          A-5879-17T2
                                       61
required extensive repairs.

      Given the circumstances presented, the trial court did not misapply its

discretion in approving the Restructuring Plan as a means to both salvage the

project while being mindful of the bondholder's legitimate financial interests.

The court equitably attempted to navigate a fair resolution among the competing

interests. The court understandably appointed a Special Master to assist in the

implementation of that complex Plan. Even so, certain sub-issues under Section

116 must be addressed.

      Whether MBT III is a "Qualified Housing Sponsor"

      As noted, the CIAL provides that "in the event of a foreclosure . . . the

property shall be sold only to a qualified housing sponsor." N.J.S.A. 40:37A -

116. The qualified housing sponsor must "manage, operate and maintain the

project subject to the provisions of this act" unless two conditions are met: (1)

"the interest and principal on the obligations secured by the lien which is the

subject of foreclosure cannot be earned under the limitations imposed by the

provisions of this act"; and (2) the foreclosure was "brought in good faith." Ibid.

If the conditions are satisfied, "the property may be sold free of limitations

imposed by this act or subject to such limitations as the court may deem

advisable to protect the public interest." Ibid.

                                                                           A-5879-17T2
                                       62
      The trial court did not specifically find that MBT III, the entity that is

proposed in the Plan to take over the project, was a "qualified housing sponsor."

The CIAL defines the term "qualified housing sponsor," with substantial

precision, as:

            (1) any housing corporation heretofore qualified under
            the provisions of the "Limited-Dividend Nonprofit
            Housing Corporations or Associations Law," P.L.1949,
            c. 184 (C.55:16-1 et seq.), repealed by P.L.1991, c. 431,
            (2) any urban renewal corporation or association
            heretofore qualified under the provisions of the "Urban
            Renewal Corporation and Association Law of 1961,"
            P.L.1961, c. 40 (C.40:55C-40 et seq.), repealed by
            P.L.1991, c. 431, or any urban renewal nonprofit
            corporation or association heretofore qualified under
            the provisions of the "Urban Renewal Nonprofit
            Corporation Law of 1965," P.L.1965, c. 95 (C.40:55C-
            77 et seq.), repealed by P.L.1991, c. 431, which has as
            one of its purposes the construction, rehabilitation or
            operation of housing projects, (3) any general
            corporation formed under the provisions of Title 14 of
            the Revised Statutes or Title 14A of the New Jersey
            Statutes, which has as one of its purposes the
            construction, rehabilitation or operation of housing
            projects, (4) any corporation or association organized
            not for profit under the provisions of Title 15 of the
            Revised Statutes or any other law of this State, which
            has as one of its purposes the construction,
            rehabilitation or operation of housing projects, (5) any
            horizontal property regime formed under the
            "Horizontal Property Act," P.L.1963, c. 168 (C.46:8A-
            1 et seq.) or any condominium formed under the
            "Condominium Act," P.L.1969, c. 257 (C.46:8B-1 et
            seq.), which has as one of its purposes the construction,
            rehabilitation or operation of housing projects, and (6)

                                                                         A-5879-17T2
                                      63
            any individual, partnership, limited partnership, joint
            venture or other association, including a partnership,
            limited partnership, joint venture or association in
            which the authority is a general or limited partner or
            participant, approved by the authority as qualified to
            own, construct, rehabilitate, operate, manage and
            maintain a housing project.

            [N.J.S.A. 40:37A-107(j) (footnote omitted).]

      The CIAL permits county improvement authorities to extend loans to

qualified housing sponsors. N.J.S.A. 40:37A-108. Presumably, the ECIA, as a

county improvement authority, determined that MBT II was a "qualified housing

sponsor" under N.J.S.A. 40:47A-107(j) when it executed the ECIA Loan

Agreement and ECIA Mortgage in 2005. 35 Cocoziello testified that MBT III has

been formed as the successor entity to MBT II, but he gave no specifics as to its

ownership, other than noting it has a general partner.

      As a limited partnership, in order for MBT III to be a "qualified housing

sponsor," N.J.S.A. 40:37A-107(j)(6) requires the ECIA to approve MBT III "as

qualified to own, construct, rehabilitate, operate, manage and maintain a housing

project."

      There is no express approval by the ECIA of that qualification in the

35
   The ECIA Mortgage, ECIA Loan Agreement and the May 24, 2005, ECIA
resolution authorizing the sale of the ECIA Bonds do not mention the term
"qualified housing sponsor."
                                                                         A-5879-17T2
                                      64
record. However, the ECIA is surely familiar with the Restructuring Plan, as it

is a party to both the foreclosure and receivership actions. The ECIA's attorney

and Executive Director participated in the settlement discussions. That attorney

also appeared at trial and briefly questioned Cocoziello regarding the Plan.

      The ECIA has not filed a brief in the appeal. Nor has it expressed any

objection to the Restructuring Plan or the transfer of MBT II's inter ests in the

project to MBT III. Under the distinctive circumstances presented here, it is

reasonable to infer that the ECIA has at least tacitly approved MBT III as a

"qualified housing sponsor." Even so, an express finding by the trial court is

necessary.

      Limitations Imposed By the CIAL

      Regarding the limitations imposed by the CIAL, MTTC argues that the

phrase "limitations imposed by this act" encompasses the federal restrictions

imposed by 26 U.S.C. § 142(d), while the State claims the limitations are those

imposed by the CIAL. We are persuaded that the phrase covers both the federal

and state limitations.

      The plain meaning of the term "this act" in N.J.S.A. 40:37A-116 is the

amendment to the CIAL that was enacted by L. 1979, c. 275.            The 1979

enactment included provisions concerning loans that could be made by county

                                                                         A-5879-17T2
                                      65
improvement authorities to qualified housing sponsors and who could occupy

projects that received such financing. L. 1979, c. 275, §§ 4-9. Specifically, the

law provided, as it currently does in N.J.S.A. 40:37A-113, that occupancy "shall

be limited to families of low and moderate income whose gross aggregate family

income at the time of admission does not exceed six times the annual rental or

carrying charges . . . or seven times said charges if there are three or more

dependents." L. 1979, c. 275, § 8. The law also provided that loans "shall be

subject to an agreement between the authority and the qualified housing sponsor

which will subject said qualified housing sponsor . . . to limitations established

by the authority as to rentals and other charges." L. 1979, c. 275, § 6 (currently

codified at N.J.S.A. 40:37A-111(e)). Thus, under a plain language reading of

the statute, the phrase "the limitations imposed by this act" is a reference that

sweeps in the limitations imposed by the other sections of L. 1979, c. 275.

      Presumably, the ECIA Loan Agreement is the agreement required by

N.J.S.A. 40:37A-111(e), although the parties have not identified it as such and

the agreement itself does not cite the statute. The ECIA Loan Agreement

required MBT II to operate the project as a "qualified residential rental project"

as defined in 26 U.S.C. §142(d). Thus, the limitations imposed by the CIAL

were, at least in part, the federal restrictions.

                                                                          A-5879-17T2
                                         66
      Under the CIAL, the ECIA was also required to obtain a mortgage on the

project. N.J.S.A. 40:37A-111(d). The ECIA Mortgage provided that it was

subject specifically to the deed restrictions contained in the HMFA Deed and

the DCA Deed as well as to "all existing and future . . . deed restrictions [and]

covenants running with the land . . . relating to the Property and to its purposes

as low income senior citizen housing." Thus, the phrase "limitations imposed

by this act" in N.J.S.A. 40:37A-116, incorporates both the federal restrictions in

26 U.S.C. §142(d), as well as the restrictions imposed by the HMFA Deed, the

DCA Deed, the AHA and the DCA Mortgage.

      Moreover, even if the DCA affordability controls were not encompassed

within the limitations imposed by the CIAL, removal of limitations imposed by

the CIAL is not a court's only option in fashioning a remedy for a financially

distressed property. Once a court determines that the foreclosure was brought

in good faith and that the principal and interest on the secured bonds cannot be

earned with the CIAL restrictions in place, the property may be sold free and

clear of those restrictions "or subject to such limitations as the court may deem

advisable to protect the public interest." N.J.S.A. 40:37A-116 (emphasis added).

Thus, the court had discretion to approve the Restructuring Plan with its

proposed affordable housing restrictions regardless of whether the DCA

                                                                          A-5879-17T2
                                       67
affordability controls were encompassed within the limitations imposed by the

CIAL. See Atl. Container, Inc. v. Twp. of Eagleswood Planning Bd., 321 N.J.

Super. 261, 270 n.4 (App. Div. 1999) ("'[o]rdinarily, the word 'or' in a statute is

to be considered a disjunctive particle indicating an alternative'") (quoting

Murphy v. Zink, 136 N.J.L. 235, 239 (Sup. Ct. 1947), aff’d, 136 N.J.L. 635 (E.

& A. 1948)); see also Alexander v. Bd. of Review, 405 N.J. Super. 408, 417

(App. Div. 2009) ("'or' is ordinarily considered to be a disjunctive particle").

      As discussed, supra, the HMFA Deed restrictions will be eliminated if

there is a final judgment of foreclosure. By contrast, as explained above , the

contractual DCA affordability controls could theoretically survive foreclosure.

The trial court recognized that Cape May County had a "particular shortage" of

housing for senior citizens of modest income and determined that Marina Bay

Towers was an important public resource. Ultimately, it found pursuant to

N.J.S.A. 40:37A-116, that the interest and principal on the ECIA Loan could not

be earned with those restrictions in place, determining that "the only way to

protect the interest of PAC Capital as bondholder while simultaneously

maximizing affordable housing [was] to order acquiescence of all parties to the

proposed Restructuring Plan."      The court was "mindful that [its] equitable

powers should not be exercised except when a failure to do so will work against

                                                                           A-5879-17T2
                                       68
the strong public interest, such as preservation of low and moderate income

housing, particularly in a geographical area which has such a limited supply."

Hence, the DCA affordability controls were justifiably removed, essentially out

of fiscal necessity and in the absence of the additional infusion of government

funds.

      The Impact of N.J.S.A. 40:37A-90

      Although the State argues that extinguishing the DCA Mortgage, DCA

Deed and AHA affected or limited DCA's rights in violation of N.J.S.A. 40:37A-

90, that statute does not prevent the court from exercising its discretion to

remove the DCA's affordable housing controls.

      N.J.S.A. 40:37A-90 was enacted as section 47 of L.1960, c. 183, which

was the original enactment of the CIAL. Under that law, the purpose of every

county improvement authority was to provide for (1) public buildings for use by

the State, county, municipality or any subdivisions, departments or agencies

thereof; (2) structures and facilities for public transportation; and (3) structures

or facilities for military or civil aviation. L. 1960, c. 183, § 11. The provision

the State relies on says "nothing contained in this act shall in any way affect or

limit the jurisdiction, rights, powers or duties of any State regulatory agencies."

N.J.S.A. 40:37A-90. There is no case law interpreting this provision. However,

                                                                            A-5879-17T2
                                        69
the plain meaning of the phrase "this act" is L. 1960, c. 183, an enactment which

did not authorize county improvement authorities to grant loans or issue bonds

for the purpose of financing housing projects.

      When the CIAL was later amended by L. 1979, c. 275, county

improvement authorities were authorized to provide loans for low and moderate

income housing projects. L. 1979, c. 275, § 32 (currently codified at N.J.S.A.

40:37A-54(i)).   In addition to being the source for the foreclosure provision,

N.J.S.A. 40:37A-116, relied upon by the trial court, the 1979 act contained two

other provisions that support the court's broad equitable powers to remove the

DCA affordability controls. The first, L. 1979, c. 275, § 19, codified at N.J.S.A.

40:37A-124, provides that:

            The State of New Jersey does hereby pledge to and
            covenant and agree with the holders of any bonds, bond
            anticipation notes or other notes or obligations issued
            pursuant to the authority of this act that the State will
            not limit or alter the rights or powers hereby vested in
            the authority to perform and fulfill the terms of any
            agreement made with the holders of such bonds, bond
            anticipation notes or other notes or obligations, or in
            any way impair the rights or remedies of such holders
            until such bonds, bond anticipation notes and other
            notes or obligations, together with interest thereon,
            with interest on any unpaid installments of interest, and
            all costs and expenses in connection with any action or
            proceedings by or in behalf of such holders, are fully
            met and discharged or provided for.

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                                       70
The statute prevents the State from insisting that the DCA affordability controls

be maintained if doing so would "impair the rights or remedies" available to the

bondholder under N.J.S.A. 40:37A-116.

      The second provision, L. 1979, c. 275, § 29, codified at N.J.S.A. 40:37A-

134, specifies that "[t]he powers enumerated in this act shall be interpreted

broadly to effectuate the purposes thereof and shall not be construed as a

limitation of powers." Unlike N.J.S.A. 40:37A-90, which, while providing that

the 1960 act "shall be construed liberally to effectuate the legislative intent" also

imposed the limitation that the rights and powers of other state agencies not be

affected, N.J.S.A. 40:37A-134 contains no restriction on the broad interpretation

of the 1979 act. There are no cases that cite either N.J.S.A. 40:37A-124 or

N.J.S.A. 40:37A-134.

      Construed sensibly and in context, the 1979 statute conferred broad

powers on the trial court to accomplish the purposes of the act, which would

include removing the DCA affordability controls, as long as the court's finding

that the obligations under the ECIA Loan could not be met with the controls in

place is supported by the record. As explained above, the record in this case

supports the trial court's reasonable finding that PAC Capital's interests could

not be protected without removal of the low-income restrictions.

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                                        71
      The trial court specifically found in this regard that "nothing submitted to

this Court indicates that the Restructuring Plan and the corresponding

foreclosure [were] proposed in bad faith." The court noted that MTTC and PAC

Capital "made numerous revisions to the proposed plan to attempt to

accommodate the various interested parties." This finding is supported by the

record, as Domalewski and Cocoziello testified to discussions with the state

entities and attempts made to obtain financing to rehabilitate the project.

      "Qualified Residential Rental Project"

      Although the trial court addressed the affordability controls imposed by

the HMFA and the DCA, it did not specifically address whether the interest and

principal on the ECIA Loan could be earned under the restrictions imposed by

26 U.S.C. § 142(d). That statute defines a "qualified residential rental project"

as one that elects either to have "20 percent or more of the residential units . . .

occupied by individuals whose income is 50 percent or less of [AMGI]" ("20-

50 test") or "40 percent or more of the residential units . . . occupied by

individuals whose income is 60 percent or less of [AMGI]" (the "40-60 test").

26 U.S.C. § 142(d)(1). The Restructuring Plan allows existing tenants, who

qualified under the original low-income standard in the HMFA Deed as

individuals whose income was 50% or less of AMI, to remain in the building.

                                                                            A-5879-17T2
                                        72
However, the Plan provides that vacant units will be rented to households whose

income is 80% or less of AMI.

      As we have noted, the Restructuring Plan anticipates that the rehabilitated

building will contain 132 units, of which forty-one will be sold at market rates.

At the time of trial, approximately sixty units were occupied, and the amended

foreclosure complaint filed in August 2018, lists forty-nine tenant-defendants.

The Restructuring Plan projected that by the year 2021, only nineteen of the

original tenants would remain. Therefore, by the year 2021, or perhaps sooner,

the project will no longer satisfy the "20-50 test." 26 U.S.C. § 142(d) (1)(A).

Nor will it satisfy the "40-60 test," 26 U.S.C. § 142(d) (1)(B), because, under

the Restructuring Plan, vacant units will be rented to households whose income

is 80% or less of AMI.

      There was no evidence at trial as to whether financing could be secured to

rehabilitate the building if the project was required to meet the 40-60 test. Under

the test, occupancy for 60% of the units could presumably be unrestricted.

Interestingly, the Restructuring Plan anticipated charging rents that were less

than the allowable affordable rent for a one bedroom unit rented to households

earning 80% or less of AMI, as it listed the net allowable affordable rent at

                                                                           A-5879-17T2
                                       73
$1053, and the projected rent receivable at $875. 36

      This discrete issue is remanded to the trial court for an explicit finding as

to whether the obligations under the ECIA Loan can be met if the project is

required to satisfy the definition of a "qualified residential rental project" under

26 U.S.C. § 142(d)(1). The Special Master has been tasked with making a

related recommendation to the court after

            [r]eviewing and modifying the proposed Restructuring
            Plan to better evaluate the proposed scope of repairs, to
            utilize a more up-to-date cost projection, and to
            evaluate projected rental incomes at 50%, 60%, and
            70% AMI to see if more affordable units at lower rents
            could be preserved, the objective being to maximize the
            number of such units[.]

Given the topical overlap, the Special Master should also be tasked to

recommend to the court whether the project can remain a "qualified residential

rental project" under 26 U.S.C. § 142(d)(1), thus complying with the specified

limitations imposed by the CIAL. N.J.S.A. 40:37A-116.

      The Need for a Final Judgment of Foreclosure

      Lest it become overlooked, we must emphasize that the trial court's power

under N.J.S.A. 40:37A-116 to eliminate the affordability controls and approve

36
   The Restructuring Plan listed the net allowable affordable rent for households
earning 60% or less of AMI at $765.
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                                        74
the Restructuring Plan is dependent on a judgment of foreclosure, which has not

yet been entered in this case. Thus, on remand, the trial court is directed to enter

a final judgment of foreclosure in due course.

      Apparent Inconsistency of the Deed Restriction with the Restructuring
      Plan

      As pointed out by the Litigating Tenants, the terms of the proposed Deed

Restriction, which the trial court ordered be executed as of the date the final

judgment of foreclosure is entered, appears to conflict with the Restructuring

Plan. The Deed Restriction states that "[t]he number of Restricted Units during

the Restricted Term[37] shall not number less than the elective minimum set-aside

37
   The "Restricted Term" is defined in the deed restriction as "beginning on the
date the Restricted Unit Property has achieved substantial completion following
redevelopment, rehabilitation, repair, construction and/or renovation and ending
on the date that coincides with the last day of any new 'qualified project period '
pursuant to 26 U.S.C. § 142(d)." "Qualified project period" is defined in 26
U.S.C. § 142(d)(2)(A) as:

            the period beginning on the 1st day on which 10 percent
            of the residential units in the project are occupied and
            ending on the latest of--
                   (i) the date which is 15 years after the date on
                   which 50 percent of the residential units in the
                   project are occupied,
            (ii) the 1st day on which no tax-exempt private activity
            bond issued with respect to the project is outstanding,
            or
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                                        75
provided pursuant [to] 26 U.S.C. § 142(d)." But as explained above, under the

Restructuring Plan projections, by the year 2021, the project will not meet the

set-asides provided in 26 U.S.C. § 142(d).          Because the Deed Restriction

approved by the court appears to conflict with the Restructuring Plan, paragraph

5 of the trial court's order is reversed and remanded for the court to resolve that

apparent conflict.

                                         IV.

      The State and the City argue this foreclosure litigation is "pretextual," and

the remedy of foreclosure therefore should be disallowed.               They argue

Cocoziello is essentially the "true plaintiff in in interest," and that he is misusing

the foreclosure process to escape the State's affordability controls. They contend

there is a lack of adversity in the foreclosure case.

      As we have already noted, the trial court found these arguments were

barred by principles of res judicata because the State knew of Cocoziello's roles

in the various project entities long ago, and an argument of pretextuality could

have been raised in previous litigation. We agree.

             (iii) the date on which any assistance provided with
             respect to the project under section 8 of the United
             States Housing Act of 1937 terminates.
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                                         76
      Although we recognize Cocoziello's close relationship with MBT II and

several of the other entities involved in the financing and development of Marina

Bay Towers, the record supports the trial court's finding that the DCA and

HMFA were long aware of Cocoziello's ties to all of the entities involved in the

financing and development of the project. That awareness surely existed before

the HMFA, with the participation of the DCA Director, authorized the second

allocation of LIHTCs.

      Moreover, notwithstanding Cocoziello's ties to PAC Capital and MBT II,

under 26 U.S.C. § 42(h)(6)(E)(i)(I), only the United States Treasury Secretary

can prevent termination of the extended use period after a building is acquired

by foreclosure through a determination that the "acquisition is part of an

arrangement with the taxpayer a purpose of which is to terminate such period."

Thus, a determination by a state court that a foreclosure was pretextual would

be insufficient to prevent the extended use period from terminating, absent a

federal determination in the State's favor by the Secretary. Although requested

to do so by the HMFA, the Secretary declined to make such a determination.

      We therefore uphold the trial court's rejection of the pretextuality

argument.

                                                                         A-5879-17T2
                                      77
                                         V.

      The State further argues the trial court improperly rejected the Litigating

Tenants' application for a receiver. The State contends in particular that the

court did not address whether the Restructuring Plan conformed to the standards

set forth in the Receivership Act.

      The State asserts that, by appointing a Special Master to "define the scope

of necessary repairs, the reasonableness of the plan, whether any additional rent-

restricted units can be preserved, and whether the Plan is fiscally viable . . . the

[trial] court conceded that the record lacked facts sufficient to support its order. "

The State argues that appointment of a Special Master is "unwarranted and

inappropriate" because the court should have decided the questions it left to the

Special Master. The State claims the appointment "amounts to an abdication of

the judicial function on the fundamental issues involved in the litigation." The

City adopts the State’s arguments.

      The Litigating Tenants, meanwhile, argue that once a finding is made that

the criteria for the appointment of a receiver have been met, the Receivership

Act "requires appointment of a receiver or approval of a specific plan by the

owner to remedy the conditions." They contend that the trial court determined

that the criteria for appointment had been satisfied, but then "failed to make any

                                                                              A-5879-17T2
                                        78
findings as to whether the [Restructuring Plan] met the statutory requirements."

They claim that there has been no showing that the Restructuring Plan is

financially feasible and that MTTC "failed to establish that the code violations

and other conditions affecting habitability of the premises . . . would be abated

'within a reasonable period'" as required by the Receivership Act. They argue

that "[a] receivership is the most promising option for preserving the building"

because the receiver could "address[] any conditions that affect tenants' health

and safety, while also investigating whether there are viable options other than

the [Restructuring Plan] for preserving the property." Alternatively, in the event

that the denial of a receiver is affirmed, the tenants support the appointment of

a Special Master.

      Interpretation of the Receivership Act

      The trial court's determination that it had the discretion to deny

appointment of a receiver, is a question of statutory interpretation subject to de

novo review. Klawitter, 395 N.J. Super. at 318.

      Under the Receivership Act,

            A building shall be eligible for receivership if it meets
            one of the following criteria:

                    a. The building is in violation of any State or
                    municipal code to such an extent as to endanger
                    the health and safety of the tenants as of the date

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                                        79
                   of the filing of the complaint with the court, and
                   the violation or violations have persisted,
                   unabated, for at least 90 days preceding the date
                   of the filing of the complaint with the court; or

                   b. The building is the site of a clear and
                   convincing pattern of recurrent code violations,
                   which may be shown by proofs that the building
                   has been cited for such violations at least four
                   separate times within the 12 months preceding
                   the date of the filing of the complaint with the
                   court, or six separate times in the two years prior
                   to the date of the filing of the complaint with the
                   court and the owner has failed to take action as
                   set forth in section 9 of P.L.2003, c. 295
                   (C.2A:42-122).

            A court, upon determining that the conditions set forth
            in subsection a. or b. of this section exist, based upon
            evidence provided by the plaintiff, shall appoint a
            receiver, with such powers as are herein authorized or
            which, in the court's determination, are necessary to
            remove or remedy the condition or conditions that are
            a serious threat to the life, health or safety of the
            building's tenants or occupants

            [N.J.S.A. 2A:42-117 (emphasis added).]

      The statutory language quoted above seems internally inconsistent, as it

first provides that a building "shall be eligible for receivership" if either of the

two criteria are met, but then provides that if a court determines that either of

the conditions exist, it "shall appoint a receiver." Ibid.

      This apparent ambiguity within N.J.S.A. 2A:42-117 may be resolved by

                                                                            A-5879-17T2
                                        80
looking for guidance to a separate portion of the Receivership Act, section 123,

which provides that:

            a. If the court determines, after its summary hearing,
            that the grounds for relief set forth pursuant to section
            5 of P.L.2003, c. 295 (C.2A:42-118) have been
            established, the court may appoint a receiver and grant
            such other relief as may be determined to be necessary
            and appropriate. . . .

            b. If the court determines, after its summary hearing,
            that the grounds for relief set forth pursuant to section
            5 of P.L.2003, c. 295 (C.2A:42-118) have been
            established, but the owner presents a plan in writing to
            the court demonstrating that the conditions leading to
            the filing of the complaint will be abated within a
            reasonable period, which plan is found by the court to
            be reasonable, then the court may enter an order
            providing that in the event the conditions are not abated
            by a specific date, including the completion of specific
            remedial activities by specific dates, or if the conditions
            recur within a specific period established by the court,
            then an order granting the relief as requested in the
            complaint shall be granted.

            [N.J.S.A. 2A:42-123 (emphasis added).]

      Thus, while a portion of N.J.S.A. 2A:42-117 appears to mandate the

appointment of a receiver upon a finding that either of the two criteria set forth

in the statute are met, N.J.S.A. 2A:42-123(a) instead appears to leave such an

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                                       81
appointment up to the discretion of the trial court. 38

      The construction of the statute boils down to the use of the terms "shall"

and "may." "Under the 'plain meaning' rule of statutory construction, the word

'may' ordinarily is permissive and the word 'shall' generally is mandatory."

Aponte-Correa v. Allstate Ins. Co., 162 N.J. 318, 325 (2000). However, "these

words are 'interchangeable whenever necessary to execute the clear intent of the

Legislature.'" In re Pathmark Stores, Inc., 367 N.J. Super. 50, 59 (App. Div.

2004) (quoting Harvey v. Bd. of Chosen Freeholders of Essex Cty., 30 N.J. 381,

392 (1959)).     Because the Receivership Act "is susceptible to different

interpretations," it is appropriate to consider its legislative history, which

suggests that the trial court should have discretion to appoint or deny a receiver.

Twp. of Pennsauken, 160 N.J. at 170.

      The Receivership Act was enacted as L. 2003, c. 295. The Sponsor's

Statements to both the Assembly and Senate bills explained that the then-current

law addressed receivership under three separate statutes, N.J.S.A. 2A:42-79,

N.J.S.A. 40:48-2.12h, and N.J.S.A. 54:5-53.1.         Sponsor's Statements to A.

2539/S. 1676 (L. 2003, c. 295). Among other things, the Act was intended to

38
   There is no case law interpreting these provisions. The cases cited by MBT
II are inapposite, as they do not interpret the Receivership Act or statutes that
appear to require appointment of a receiver.
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                                        82
             change[] the current situation through a series of
             measures which include[d]:

                   ....

                 giving the court broad discretion to appoint the
                  most appropriate entity to act as receiver in light
                  of the circumstances resulting in the receivership
                  action;

                   ....

                 granting the court broad discretion to act to
                  further the purposes of the statute, where
                  necessary.

             [Sponsor's Statements to A. 2539/S. 1676 (L. 2003, c.
             295) (emphasis added).]

      N.J.S.A. 40:48-2.12h and N.J.S.A. 2A:42-79, which formerly allowed

receivers to be appointed at the discretion of a municipality and the court, were

repealed by the Receivership Act.39 L. 2003, c. 295, § 32. As explained by the

Supreme Court in Jones v. Buford, 71 N.J. 433, 439-40 (1976), these statutes,

along with other legislation "seek[ing] to give remedial relief to tenants against

landlords who permit undue deterioration of buildings or who fail to provide

satisfactory living conditions, . . . strongly suggest[] a legislative intent that the

39
   The third statute mentioned in the Sponsor's Statements, N.J.S.A. 54:5-53.1,
remains in place and allows municipalities that purchase real property at a tax
sale to take possession of the property and "all rents and profits thereof."
                                                                              A-5879-17T2
                                         83
selection of any particular statutory remedy should remain within the sound

discretion of the municipal or other authorities." (Emphasis added).

       Despite the seemingly mandatory language of a portion of N.J.S.A.

2A:42-117, the Sponsor's Statements indicate that the Act was intended to give

broad discretion to trial judges. In addition, the laws that were replaced did not

mandate appointment of a receiver.

       There is nothing in the legislative history of the Act that suggests an intent

by the Legislature to require appointment of a receiver if certain conditions were

met.   Moreover, it makes eminent sense that trial judges should be given

discretion to determine if the appointment of a receiver would best serve the

interests of tenants and other interested parties. In sum, given the contradictory

language contained within the statute, the legislative history favors reading

N.J.S.A. 2A:42-117 as permissive rather than mandatory.

       The Trial Court's Discretionary Denial of A Receiver

       Accordingly, our standard of review here is whether the trial court abused

its discretion in denying a receiver. "Under this standard, 'an appellate court

should not substitute its own judgment for that of the trial court, unless the trial

court's ruling was so wide of the mark that a manifest denial of justice resulted.'"

Hanisko, 437 N.J. Super. at 362 (quoting Brown, 170 N.J. at 147).

                                                                             A-5879-17T2
                                        84
      We are satisfied the trial court did not abuse its discretion by denying the

Litigating Tenants' receivership application. MTTC presented evidence that the

cost to rehabilitate the building is estimated to be over $11 million. At the time

of trial, only fifty to sixty of the 142 units were occupied, and Cocoziello

estimated an attrition rate of ten units per year. The trial court's determination

that receivership was not a financially viable solution is supported by the record.

Moreover, the decision did not result in a manifest denial of justice because,

under the Restructuring Plan, the remaining tenants will be permitted to stay in

the rehabilitated building under their current rent restrictions.

      The State, the City and the Litigating Tenants fault the trial court for not

making a specific finding that the Restructuring Plan was "reasonable."

However, given the complexity of the proposed plan, the required financing, and

the necessary repairs, the trial court fairly determined that "extraordinary

circumstances" existed to warrant the referral to a Special Master, who is tasked

with ensuring that the plan, as implemented, is reasonable. R. 4:41-1.

      For these multiple reasons, the trial court's decision denying the

appointment of a receiver and appointing the Special Master is affirmed.

                                        VI.

      We discern no need in this opinion to consider or rely upon the

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                                        85
supplemental materials tendered by PAC Capital from another trial court

litigation in Docket No. CPM-L-357-15, which concerns the City's overall

affordable housing obligations. The City's affordable housing obligations as a

municipality simply are not before us for resolution in this appeal.

      The balance of appellants' arguments lack sufficient merit to warrant

discussion in this written opinion. R. 2:11-3(e)(1)(E).

                                      VII.

      We close this lengthy and very technical opinion with a few generic

observations. As the trial court recognized, this project was conceived with

laudable objectives to provide housing for needy senior citizens. Unfortunately,

the impact of two hurricanes, market declines, and other setbacks caused the

project to become fiscally distressed, and publicly issued bonds were unpaid.

Sadly, the building has needed major repairs and is now about two-thirds vacant.

No alternative developer has stepped forward to rescue the project. The project

has been mired in litigation for many years, in part because transactional

documents were not drafted with sufficient clarity. No matter what course of

action is pursued, the developer's company still owns the land on which the

project is built.

      The trial court admirably attempted through marathon settlement

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conferences to forge a solution. The Restructuring Plan it ultimately approved

was the best option presented to it, and is consistent with both the law and the

findings based on the extensive trial record.

      Although that Plan does not assure the level of affordable units originally

intended, it has the upside potential to keep the project viable and avoid its

closure and the eviction of the remaining tenants. It is our fervent hope that the

litigation and controversy will subside, and that the Plan, or some other variant

approved in the Chancery Court, will succeed.

                                      VIII.

      For the foregoing reasons, the trial court’s decision is affirmed in part and

reversed and remanded in part, with the following instructions:

      1.   We affirm paragraph 4 of the trial court's May 22, 2018 order

abrogating all occupancy and rent restrictions imposed by the HMFA Deed, the

amendment to the HMFA Deed, the DCA Deed, the AHA and the DCA

Mortgage, upon the entry of a final judgment of foreclosure.

      2. We affirm paragraph 12, dismissing the receivership action.

      3. We reverse and remand as to paragraph 1, concerning the approval of

the Restructuring Plan, in order for the court to make findings as to whether the

obligations under the ECIA Loan could be satisfied if the project remains a

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"qualified residential rental project" pursuant to 26 U.S.C. § 142(d)(1), and, if

so, whether the Restructuring Plan meets that requirement. The trial court also

shall make a necessary finding as to whether MBT III is a "qualified housing

sponsor" under N.J.S.A. 40:37A-107(j).

       4. We reverse and remand as to paragraph 5 for the trial court to resolve

the conflict between the proposed Deed Restriction and the Restructuring Plan.

       5. We reverse and remand for the trial court to reconsider paragraphs 6,

8, 9, and 10, in light of its findings on remand regarding approval of the

Restructuring Plan.

       6. We affirm paragraph 3, appointing a Special Master, in the event that

the court again approves the Restructuring Plan on remand.

       7. We affirm paragraph 7, establishing the priority of existing mortgage

liens.40

       Within forty-five days, the trial court shall issue a final judgment of

foreclosure, consistent with our opinion and subject to any supplementary

40
    We have no need to address paragraph 2 of the order, which states "Upon
entry of a final order of foreclosure and Sheriff's sale, the Trustee, PAC Capital
or each's designee is authorized to do all further things and take all actions
necessary." We also have no need at this time to address paragraph 11 of the
trial court's order, which concerns the hypothetical event of what should occur
if the Restructuring Plan is not implemented, an issue that the part ies did not
brief on appeal.
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decisions it may render. We do not retain jurisdiction.

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