August 29, 2025

The statutory provision in question, § 2A:50-64(g), provides that “in the case of a foreclosed residential property, a nonprofit community development corporation, that has a written agreement with a foreclosed upon defendant, next of kin of the foreclosed upon defendant, or tenant of the foreclosed upon property … shall have a right of second refusal to purchase the property which is subordinate to the first right of refusal provided to a foreclosed upon defendant, next of kin of the foreclosed upon defendant, or tenant of the foreclosed upon defendant.” The same section provides that when a non-profit corporation exercises their right of second refusal, it may “purchase the property in the amount approved for the final starting price on the day of the sheriff’s sale at the time of the sale.”

This case originated in multiple vicinages across New Jersey when numerous junior lienholders filed motions to vacate sheriff’s sales in their respective foreclosure actions because, at each sale, non-profit community development corporations purchased the properties for the upset price – the minimum bid required to ensure that a senior lienholder receives what they are owed. The junior lienholders challenged the sales on the grounds that providing non-profit community development corporations the right to purchase the property for the upset price (1) deprived junior lienholders of their opportunity to purchase a foreclosed-upon property at Sheriff’s sale; and (2) precluded property owners from recovering surplus equity in their homes.

On October 21, 2024, the separate foreclosure actions were consolidated into one case in Mercer County, therein presenting the Court with the question of whether the “right of second refusal” fits within the bounds of our Federal and State Constitutions.

The Opinion

The culmination of this case was a nineteen (19) page opinion holding that the right of second refusal in the Community Wealth Preservation Act violates the Takings Clause of the Fifth Amendment of the United States Constitution and the New Jersey Constitution. The Court reasoned that by permitting non-profit community development corporations to purchase foreclosed residential properties for the upset price, which is often far lower than what other members of the public are willing to pay, Subsection (g) of the Act extinguishes the property owner’s right to obtain surplus equity in the property and, later, the junior lienholder’s entitlement to redeem surplus funds.

The Court has ordered that § 2A:50-64(g) is stricken from the Community Wealth Preservation Act, but the rest of the Act remains in effect – including Subsection (d) of the Act, which grants a right of first refusal to the foreclosed upon defendant, next of kin of the foreclosed upon defendant, and tenant of the foreclosed upon defendant. The constitutionality of § 2A:50-64(d) remains highly debated throughout New Jersey.

Importantly, the change resulting from the Court’s decision in this case is not retroactive and will only apply to Sheriff’s sales conducted after August 28, 2025. The Court’s decision may be subject to appeal, where the right of second refusal could be reinstated, but, at least for the near future, junior lienholders in New Jersey can protect their interests in residential property against non-profit community development corporations through competitive bidding at Sheriff’s sale.

For more information on recent developments of New Jersey’s Community Wealth Preservation Act, or any other aspect of creditors’ rights law, please contact Michael Kahme, Eric Kelner, Mark Roney, or Daniel Kaschak.