Assembly Votes To Convert Foreclosures Into Affordable Homes
Written by: Eric P. Kelner, Michael Kahme and Keith M. Salmeri
On June 15, 2020, the New Jersey General Assembly passed Assembly Bill No. 1049 known as the “New Jersey Residential Foreclosure Transformation Act” (the “Bill”). The basic premise of the Bill is to create affordable housing by using existing foreclosure property throughout New Jersey. The bill creates a separate office within the New Jersey Housing and Mortgage Finance Agency (“NJHMF”) through which the office would purchase foreclosed homes in order to turn them into affordable housing. The office is funded through the levying of a $350.00 tax to be assessed by county Sheriff’s offices on all future foreclosure sales. Although the bill has only passed the Assembly and is still in committee in the New Jersey Senate, many New Jersey Senators and the Governor have expressed interest in the bill.
The New Jersey Residential Foreclosure Transformation Program
The Bill, within the NJHMF, creates the New Jersey Residential Foreclosure Transformation Program (“FTP”). The FTP is generally tasked with overseeing the program envisioned by the Bill and is also required to produce annual reports tracking certain metric data relating to foreclosures in New Jersey.
The FTP is given broad authority to enter into contracts it “determines to be necessary or appropriate” to carry out the responsibilities under the Bill and may employ consulting services, real estate and loan portfolio asset management firms, property management firms, auction firms, and brokerage services to name a few. The Bill also empowers the FTP to enter into contracts or loans with no more than two qualified community development financial institutions, a designation issued by the United States Department of the Treasury, to negotiate, bid for, and purchase eligible properties for the production of affordable housing.
In selecting contractors from among qualified community development financial institutions, the FTP is to accord “strong preference” to institutions with substantial experience in New Jersey. Any contract entered into by the FTP and a qualified community development financial institution is required to include the repayment schedule for the portion of the funding to be repaid and targeted goals of affordable housing to be produced as well as specify the reasonable administrative costs for the qualified community development financial institution to exercise its obligations. Any contract is also required to set forth the criteria for instances when the transfer of property at market-rate, as opposed to an affordable rate, further the purposes of this act.
The FTP or its contractors are permitted to convey any property purchased under the Bill as affordable housing subject to a 30-year maximum deed restriction. Property can be conveyed at market rate, and not subject to the 30-year affordability restriction so long as the property can be conveyed at a rate deemed “affordable”, meaning that if the market rate for the property already qualifies it as “affordable” then the property can be conveyed without any restrictions.
The Foreclosure to Affordable Housing Transformation Fund
To fund this program, the Bill creates a Foreclosure to Affordable Housing Transformation Fund which is to be used to purchase the foreclosure property to be converted into affordable housing. According to the Bill, when county Sheriff’s offices conduct Sheriff’s sales, they are required to charge a $350.00 tax per sale which is to be deposited into the Foreclosure to Affordable Transformation Fund. The tax is waived only in the case of purchasers who are financing the foreclosure sale through the use of a first-time homebuyer loan insured by the Federal Housing Administration. These funds are then to be used to purchase foreclosed properties that the FTP or its contractors will develop into affordable housing.
Bill Passage Status
As of the date of this memorandum, the Bill has been approved by the New Jersey General Assembly. An identical copy of the Bill is currently under review in committee in the New Jersey Senate.
©2020 Hill Wallack LLP. All rights reserved. Please contact Hill Wallack for permission to reprint. Notice: The purpose of this Client Alert is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, accuracy and completeness of which cannot be assured. This Client Alert should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.