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    • 02/12/2021

      COVID-19 and Foreclosures In New Jersey - Can I Go To Sale?

      Client Alert

      Written by: Mark A. Roney, Esq.

      At the inception of the COVID-19 pandemic, the New Jersey Legislature and Governor Murphy acted to prevent the eviction and ejectment of residential tenants and homeowners from “residential property”. The governor’s actions in declaring a State of Emergency and Public Health Emergency also resulted in the county sheriffs suspending all foreclosure sales in New Jersey, both residential and commercial.

      Over the last few months, a number of county sheriffs have begun to conduct sales on vacant properties and in certain cases commercial properties. In addition, there is an alternative available for residential property which allows lenders to proceed to sale. With these various orders and laws, it is most important for a lender to consult with counsel to determine whether the sheriff’s sale can occur and under what circumstances.

      Where We Were At the Beginning of the Pandemic

      At the inception of the COVID-19 pandemic, effective March 19, 2020, the New Jersey Legislature enacted a statute, N.J.S.A. 2A:18-59.3, which authorized the governor of New Jersey to prohibit any lessee, tenant, homeowner, or other person from being removed from a “residential property” and staying enforcement of writs or judgments of possession and warrants of removal in the event a Public Health Emergency or State of Emergency was declared. Almost immediately upon the passing of the statute, on March 19, 2020, Governor Murphy issued Executive Order No. 106 (“EO106”), which implemented the provisions of the statute resulting in a moratorium on evictions and ejectments. The language of EO106 is essentially identical to its enabling statute and does not impose any restrictions of the enforcement of Writs of Execution or conducting foreclosure sales.

      The Superior Court of New Jersey, through the Administrative Office of the Courts (the “AOC”) also acted early during the pandemic. On March 27, 2020, the AOC issued a partial administrative freeze on foreclosure actions during the pandemic. As a result of the Court’s action, while foreclosure actions could be filed, served, and defendants could be defaulted, no application for final judgment or other motions would be considered by the Office of Foreclosure. The limited freeze on prosecuting foreclosure actions was lifted on June 25, 2020 and cases were then able proceed through to the entry of final judgment and the issuance of a writ of execution to initiate the foreclosure sale process.

      Where We are Now in the “Second Wave”

      Governor Murphy has issued subsequent executive orders continuing the stay of evictions first enacted in EO 106 and the current moratorium extends through late February 2021. Additional executive orders are expected for the foreseeable future and there is no current indication that sheriffs will permit residential foreclosure sales occupied by individuals to occur until the public health emergency is over. Recently, however, the AOC has advised the legal community that commercial evictions can proceed, in certain limited situations (such as the tenant having ceased operations or the property owner facing foreclosure litigation due to unpaid rent or real property charges).

      Currently, absent the existence of other restrictions on prosecuting a foreclosure action (such as the stay of federally insured mortgages issued by the Department of Housing and Urban Development), there are no restrictions on filing and prosecuting foreclosure cases to final judgment in New Jersey or sending issued Writs to the sheriffs of the counties requesting that sales be scheduled.

      Recently, various county sheriffs have begun conducting foreclosure sales of commercial or vacant properties under appropriate COVID-19 safety restrictions. As of the end of January 2021, more than ten (out of twenty-one) Sheriff’s Offices are currently conducting foreclosure sales for non-residential properties or vacant properties. In these instances, most of the sheriffs’ offices are requiring only a certification stating that the real property being foreclosed is a commercial property, vacant, or both. Currently, at least two northern New Jersey counties have recently reversed their decision to allow foreclosure sales to proceed due to the “second wave” of COVID-19 cases currently affecting New Jersey. An additional county is now requiring an order declaring the property vacant before a sale date for non-“residential property” will be scheduled.

      Available Options to List Residential Property For Sale

      As it stands now, depending on the county in which a lender’s property is located, it may have the ability to proceed to a foreclosure sale if the property is commercial in nature, is vacant, or is a vacant residential property. A certification stating the category of property can be prepared and submitted very quickly. In the counties in which an order for foreclosure sale is required, while there is no legal support for the position, if the property is vacant or not “residential property”, a motion to obtain an order authorizing the foreclosure sale is not a complicated motion to prepare or have decided, even if it is not legally required.

      In either circumstance, it is recommended that a property inspection be ordered to support the certification or motion regarding the property type. It is recommended that the inspector be directed to note the factors set forth in N.J.S.A. 2A:50-73 that would satisfy the statutory requirements to allow a lender to foreclose on what is considered a “vacant and abandoned” property. Those factors include, but are not limited to, overgrown vegetation, disconnected utility services, accumulated debris, lack of visible furnishing in the interior of the structure, boarded up windows and doors, visible damage to the structure. If these details can be provided to substantiate that the residential property is vacant, there will be a higher likelihood of being able to proceed to foreclosure sale. Further support can be provided in the form of the publicly available tax assessor information – if not already included in the required pre-foreclosure title search. This information will allow counsel to support the assertion the property is commercial in nature or vacant land.

      If the property to be sold is a “residential property” a lender can always file a motion seeking court authorization to allow the foreclosure sale to proceed. In filing a motion to authorize a sale of a residential property it is recommended that a lender present information to meet the “in the interests of justice” standard for removal orders which is included in the statute and EO106. While not directly applicable to a motion to allow a sale since the statute and EO106 do not prohibit sales, the “in the interests of justice” standard will likely be invoked by the court in reviewing any motion to allow a foreclosure sale.

      The phrase “interests of justice” is not defined in the statute but is generally understood to require a significant or important matter that requires intervention by the court system. Such a standard is flexible and satisfying the standard will depend on the unique facts of each loan. Given the strong public interest in allowing people to stay in their homes during the pandemic, care should be taken to file motions only where the continued stay on foreclosure sales would be truly prejudicial to a lender. Such situations would include, but not be limited to, loans where the default occurred many years prior, where a debtor has repeatedly filed frivolous motions or numerous bankruptcies just to delay the foreclosure from proceeding, or situations where the lender’s security is in jeopardy because the physical structure of the property is damaged or the property is a hazard to the community.

      The current pandemic and the moratorium on foreclosure sales has caused substantial hardships on many, including lenders who have been unable to realize on their collateral, even when the property is vacant. The situation is slowly returning to pre-pandemic circumstances, but with the proper legal advice, lenders can take various actions to protect themselves and their collateral to minimize the restrictions on their rights.

      If you have questions about this or any other issues, please contact one of our creditors' rights/bankruptcy attorneys.

      ©2021 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.