New Jersey’s mortgage and property creditors must comply with new foreclosure provisions that accelerate title transfers and sales of abandoned properties and provide added protections for residential homeowners.
Gov. Phil Murphy signed a legislative package in April with the intent to streamline foreclosure processes and reduce the epidemic of vacant or “zombie” properties that contribute to community blight across the state. This has been a lingering issue since the 2008 financial crisis.
While most of the new provisions pertain to foreclosures involving residential mortgage properties – defined as a building with at least one and not more than four residential units with at least one unit owner-occupied – some of the new laws apply equally to foreclosure of commercial properties.
Below is a summary of the critical foreclosure developments affecting property and mortgage lenders.
Foreclosure Process Updates
Foreclosure Mediation Program Formalized
P.L. 2019, c.64 codifies the judicially created Foreclosure Mediation Program, formally establishing a long-term, permanent program to increase the number of people entering mediation and ensure that homeowners leverage best possible outcomes by receive housing counseling assistance. The law requires that residential mortgage lenders give the home owner notice of the availability of mediation and 60 days to elect to participate after commencement of a legal action. Permanent funding for the program is established through the creation of an appropriation to be funded by an additional $155 fee paid by the plaintiff when initiating a residential foreclosure, and by dedication of civil penalties assessed for failure of either lender or borrower to participate in the mediation process.
Licensing and Surety Bond Requirements
P.L. 2019, c. 65 establishes licensing and surety bond requirements for persons engaged in servicing residential mortgage loans. Banks and credit unions are exempt if chartered in New Jersey or if they are federally insured (as are subsidiaries of those financial institutions) and, under certain conditions, exemptions extend to persons who are licensed under the New Jersey Residential Mortgage Lending Act.
Creditor Contact Information Requirements | Foreclosure Acceleration
P.L. 2019, c. 66 was enacted to address the common concern about abandoned or “zombie” residential properties causing community blight. This law requires the creditor or servicer initiating foreclosure to file certain creditor contact information with a residential mortgage foreclosure complaint, the county filing that gives notice of the pending legal action in county land records and with the municipality where the property is located. These requirements intend to address complaints concerning property maintenance and code violations. This new law also allows a lender to speed up a foreclosure if it can prove the property is vacant and abandoned, reducing the time to get to a foreclosure sale to around 90 days.
Time Reduced for Creditor to Commence Foreclosure
P.L. 2019, c. 67 reduces from 20 to six the number of years within which a creditor must initiate foreclosure on a residential mortgage after a default by the debtor.
Amendment to Community Association Oversights
P.L. 2019, c. 68 amends prior law that permits condominium associates and certain other common-interest community associations to have limited priority over prior-recorded mortgages and other liens for six (6) months’ worth of unpaid customary assessments. The law now allows for inclusion of late fees, fines and reasonable attorney’s fees whether or not specifically authorized by the master deed or bylaws, and also provides that the limited priority shall be cumulatively renewed on an annual basis as necessary.
Fair Foreclosure Act Notice Requirements
P.L. 2019, c. 69 amends the Fair Foreclosure Act notice requirements by providing that once the notice is given, the lender must commence the foreclosure action within 180 days or a new notice must be given and the clock starts to run again; requires the lender to seek the appointment of a receiver if the residential property is not properly maintained and meets the necessary conditions for receivership eligibility, established pursuant to Section 4 of the "Multifamily Housing Preservation and Receivership Act," P.L.2003, c.295 (C.2A:42-117); and if the lender’s action is dismissed without prejudice the number of reinstatements is limited to three (3), except in certain instances delineated.
Out-of-State Requirements for NJ Residential Mortgage Lending Act
P.L. 2019, c. 70 clarifies that the New Jersey Residential Mortgage Lending Act applies to certain out-of-state persons involved in residential mortgage lending and servicing of residential mortgage loans in state. Banks and credit unions chartered in New Jersey or those that are federally insured are exempt from the licensing requirements.
Amendments to Sheriff Sale Procedure
P.L. 2019, c. 71 amends existing law establishing uniform procedures for sheriff’s sales that apply to both residential and commercial foreclosures. Going forward, the sale by the sheriff must be conducted within 120 days after the court’s issuance of the writ of execution (which usually happens when the foreclosure judgment is issued) and the sheriff has the option to appoint a special master to complete the sale of any one or more properties. In addition, instead of waiting for preparation of the deed by the county counsel acting for the sheriff, the deed must be prepared by the plaintiff’s attorney and submitted to the sheriff’s office. A form of deed is proscribed by the new statute. Finally, to force the transfer of title, this chapter limits to two (2) the number of times a lender can request adjournment of a sheriff’s sale.
Amendments to Foreclosure / Sale of Vacant Property
P.L. 2019, c. 72 amends the procedures for summary foreclosure and accelerated sale for residential properties which are vacant and abandoned. For these so-called “zombie” properties that cause community blight and concern, the foreclosing mortgagee can request a finding to be included in the foreclosure judgment, or later apply for an order, in which event the court shall direct the sheriff to sell the property within 60 days. If the sheriff cannot comply, the creditor can apply for appointment of a special master to conduct the sale.
Financial institutions that lend to New Jersey homeowners and commercial property owners should make appropriate changes to their foreclosure management practices.
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