Foreclosure Reform Measures
Written by: Michael Kahme, Esquire and Eric P. Kelner, Esquire
On April 29, 2019, New Jersey Governor Phil Murphy signed into law a package of new laws designed to reform and expedite the foreclosure process in New Jersey. As a result, many aspects of the foreclosure process, from the issuance of Notices of Intent to Foreclose (“NOI”) to the execution of Sheriff’s Sales will be dramatically altered. Simultaneously, the New Jersey Supreme Court has also adopted a series of rule amendments to the New Jersey Court Rules to coincide with and assist in the implementation of these new laws.
Condominium Association Liens
Effective immediately, Condominium Association Liens are now afforded extra protections. Currently, a portion of the association lien holds a limited priority over prior recorded mortgages and certain other liens in an amount not to exceed the aggregate customary condominium assessment levied against the unit owner during the six-month period prior to the recording of the lien.
Under the new laws, the limited priority of each association lien would be cumulatively renewed on an annual basis as necessary. The priority for each individual lien lasts for five years and expires on the sixth year of renewal. The cumulative annual renewal of an association lien would not prevent a subsequent lien of the association from receiving a priority over a prior recorded mortgage. The new laws also allow association liens to include any late fees, fines, expenses, and reasonable attorney’s fees.
Licensing of Mortgage Professionals
The new laws additionally now require anyone working as a mortgage servicer to obtain a license from the New Jersey Commissioner of Banking and Insurance for each main office and each branch where business is conducted. This requirement does not apply to banks, credit unions, a wholly owned subsidiary of a bank or credit union, any operating subsidiary in situation in which each owner of the operating subsidiary is wholly owned by the same bank or credit union, or any person licensed as a residential mortgage lender.
The laws also establish guidelines whereby out of state residential mortgage lenders, residential mortgage brokers, and residential mortgage originators would need to be licensed under the same licensing scheme as those working within New Jersey.
The new laws also codify the experimental mediation program instituted in the wake of housing crisis. Borrowers now have a right to request counseling through a mediation specialist. The specialist in turn has the authority to schedule a mediation conference in which all parties must attend. Crucially, foreclosing creditors are required to appear through a party authorized to consider alternatives to foreclosure. Failure to appear can result in a $1,000.00 fine.
The court rules require that, prior to the date of a scheduled mediation, the foreclosing creditor must mail the Borrower the following information:
- An itemized loan transaction history with accompanying information, written in plain language, to explain any codes used in the history which are not otherwise self-explanatory;
- An itemized statement of the amount necessary to reinstate the mortgage loan;
- A statement of the amount necessary to pay off the mortgage loan;
- Copies of the Note, Mortgage and any agreements modifying the same; and
- The name, business mailing address, electronic mailing address, facsimile number and direct telephone number of an individual able to respond with reasonable adequacy and promptness to questions relative to loss mitigation processes.
In addition to required notice as part of NOIs, as discussed below, the summons and complaint must now also include notice to Borrowers of their right to participate in the program and the necessary contact information to participate.
This new mediation system is set to take effect on November 1, 2019. However, the judicial court rules implementing the mediation program have taken effect immediately. Therefore, we strongly recommend immediate action to ensure the availability of representatives, with settlement authority, to appear at any future mediation conference to avoid the imposition of penalties. This is to ensure strict compliance with the terms of the laws. It is hoped that as time goes on, appearances by phone will be permitted or perhaps even appearance by foreclosure counsel with representatives on standby to assist if needed.
Under the new laws, NOIs mailed prior to the filing of a foreclosure action will now be required to include additional information. This includes:
- Notifying the Borrower that they are entitled to counseling at no cost through the Foreclosure Mediation Program established by the New Jersey Judiciary;
- Notifying the Borrower that in order to participate, the Borrower must submit a completed Mediation Request Statement to the Superior Court Clerk’s Office, Foreclosure Mediation, P.O. Box 971, 25 Market Street, Trenton, New Jersey 08625 at any time within 60 days from the date of service of the Summons and Complaint;
- Notifying the Borrower that they may participate in the Foreclosure Mediation Program after 60 days from the service of the summons and Complaint but before the sale of the property only by filing a motion with the Superior Court Clerk’s Office in Trenton;
- Notifying the Borrower that if a property under foreclosure has between two and four dwelling units, one of which was occupied by the Borrower or a member of their immediate family at the time of origination, and meets the necessary conditions for receivership under the “Multifamily Housing Preservation and Receivership Act” (N.J.S.A. 2A:42-117), then the foreclosing entity will be required to file an Order to Show Cause to appoint a receiver for the property.
The statutes conflict on the date these new requirements are supposed to be implemented. Some statutes indicate the requirements are to take effect as of August 1, 2019 while others indicate the requirements do not take effect until November 1, 2019. To avoid any issues, it is recommended updated NOIs be used starting on the earlier date of August 1, 2019.
In addition to these additional information requirements, the new laws also place an expiration date on NOIs of 180 days. Therefore, any foreclosure action that is not filed within 180 days of the mailing of the NOI must be delayed in order to issue a new, valid NOI. The new expiration date for NOIs comes into effect on August 1, 2019 and will apply to all notices sent prior. Therefore, we strongly encourage a review of current submitted NOIs to determine how close to the new expiration date they are.
Notices to Municipalities
The new laws also alter municipal notice requirements for properties in foreclosure. For all New Jersey creditors, within 10 days of serving the summons and complaint, the foreclosing entity must submit a letter to (1) the municipal clerk and (2) the mayor or other chief executive office that includes:
- The name, address, and telephone number for a representative of the creditor responsible for receiving complaints of property maintenance and code violations;
- The full contact information for any person or entity retained by the creditor or representative of the creditor to be responsible for any care, maintenance, security, or upkeep of the property exterior.
Out of state creditors must also provide this information in addition to contact information for an in-state representative responsible for care, maintenance, security, and upkeep of the property exterior.
Foreclosing creditors must file updates within 10 days of any change to the above information.
This information must also be filed with the foreclosure summons and complaint along with the filed Lis Pendens in the county clerk’s office.
These requirements will come into force on July 29, 2019 and apply to all residential foreclosure actions filed on or after July 29, 2019.
The new laws also make several substantive changes to the way foreclosure litigation is conducted. First, if a property under foreclosure has between two and four dwelling units, one of which was occupied by the Borrower or a member of their immediate family at the time of origination, and meets the necessary conditions for receivership under the “Multifamily Housing Preservation and Receivership Act” (N.J.S.A. 2A:42-117), then the foreclosing entity will be required to file an Order to Show Cause to appoint a receiver for the property.
Next, the new laws also dramatically decrease the statute of limitations for a foreclosure action in New Jersey. Up until now, creditors had twenty (20) years from the date of a Borrowers’ default to institute a foreclosure action. This will remain the case for all loan originated prior to April 30, 2019. However, for all loans originated on or after April 30, 2019, creditors will now only have 6 years from the date of a Borrowers’ default to institute a foreclosure action.
The laws also alter the method by which foreclosure actions dismissed for failure to prosecute are reinstated. Now, foreclosure actions dismissed for failure to prosecute can be reinstated three (3) times on a showing of good cause. However, the cost to reinstate the foreclosure action is equal to twice the cost of filing a foreclosure action. These costs also cannot be charged back to Borrowers at the conclusion of a foreclosure action.
Finally, the Court rules reduce the notice time for the filing of a motion to enter final judgment against properties with junior creditors from 30 days to 10 days.
The new laws also drastically alter the method for conducting Sheriff’s Sales. The new laws establish a framework in which Sheriff’s Sales for foreclosures must take place within 150 days of the Sheriff receiving the Writ of Execution. Under the framework, a Sheriff’s Sale can be adjourned up to thirty (30) days five (5) times; twice by creditors, twice by Borrowers, and once by both if Borrower and creditor agree to the adjournment. Any additional adjournments will only be granted by leave of Court. If the Court does not grant leave beyond the 150 days, the sale will have to be canceled. At this stage, it is unclear how the Court will handle instances of delays as a result of outside factors such as bankruptcy. That being said, the wording of the laws suggest the filing of a bankruptcy could result in the need to cancel a pending Sheriff’s Sale.
In addition, new laws now require attorneys to prepare and submit the Sheriff’s Deed within 10 days of a sale. This framework will come into effect July 29, 2019.
The new laws also alter the treatment of vacant properties. Under the new laws, the local Sheriff must auction a property deemed vacant prior to the entry of judgment within 90 days of the Sheriff’s receipt of any Writ of Execution. If the Sheriff cannot meet the 90 day deadline, the foreclosing entity must file a motion to appoint a special master to sell the property within 90 days of the motion.
For properties deemed vacant after the entry of judgment, the foreclosing creditor may make a motion to the Court requesting the property be sold within 90 days.
This new framework is set to take effect on May 30, 2019.
©2019 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.