New Jersey Lawyer & Attorney : Stark & Stark Law Firm : New Jersey Law Blog

The State of New Jersey recently (on January 17, 2010) passed the New Jersey Foreclosure Fairness Act (the “Act”) which will effect how foreclosures cases are handled in the State of New Jersey.  The Act becomes effective February 16, 2010, however, certain notice requirements become effective January 26, 2010 as noted below.

 

RESIDENTIAL UNITS WITH TENANTS
A person who takes title to a residential property containing tenants by way of a sheriff’s sale or deed in lieu of foreclosure, must provide notice no later than ten (10) business days after the sale, to any tenants of the property informing them that ownership has changed hands and that the tenants are not required to vacate the premises. 

This notice must be served by the new owner on the tenants by regular and certified mail, must be in both English and Spanish, must contain contact information to whom future rent is due and include a basic explanation of the tenant’s rights under the “Anti-Eviction Act”.  There is a particular form of notice required that the Department of Community Affairs will make  available on its website in a printable English and Spanish format that may be used.  (see www.state.nj.us/dca/ search Foreclosure Fairness Act)

The notice must also be posted prominently on the front door of each tenant’s unit. If the property contains ten (10) or more units, the new owner must post the notice in a common area of each residential building or structure on the property.

A similar notice with some additional information is also required if a summons and complaint or initial communication by a foreclosing creditor who seeks the tenant to vacate prior to the transfer of the property.

There must be no communication meant to persuade the tenant to vacate the premises except by way of a bona fide monetary offer, which must be in a made in a specific manner, and from which the tenant would have five (5) business days from receipt of the offer to accept and vacate or reject the offer.  Acceptance must be in writing.  No person or person’s agent may (1) make any misrepresentations of the rights of the tenant under the “Anti-Eviction Act” in order to induce the tenant to vacate the property; (2) state actions the owner may take against the tenant or imply the tenant is obligated to accept the offer; or, (3) any other form of harassment, such as failure to maintain the premises or rent increase in violation of municipal rent control or rent increase in violation of the Anti-Eviction Act or any other State, Federal or Municipal ordinance.

Any violation of the notice requirements or treatment of the tenants may result in triple damages or damages in the amount of $2,000.00 per violation plus attorney’s fees and costs.  Further civil or criminal actions may also be commenced against the creditor who violates this Act.

NOTICE REQUIREMENTS EFFECTIVE JANUARY 27, 2010
This Act requires that creditors serving foreclosures summons and complaints on residential property must within ten (10) days of service of the summons and complaint, notify the municipal clerk where the property is located. This will also affect any foreclosures filed  30 days before  February 16, 2010 which must also be reported to the respective municipal clerks.  The creditor must also notify the municipality if the owner of a residential property vacates or abandons a property on which a foreclosure action has been initiated. There is also a requirement to specify in the Foreclosure Complaint and notify the municipal Clerk with specified Act defined details if the property being foreclosed is an “Affordable Housing” unit. This notice must also be supplied to the municipal clerk within 10 days of the summons and complaint’s service.

After such notice if such property is found to be a nuisance or in violation of any applicable State or local code, the municipality must notify the creditor, whose responsibility it will be to correct the nuisance or violation. If the municipality expends public funds to abate a nuisance or correct a violation the municipality shall have the same recourse against the creditor as it would have against the “title owner”.

FORECLOSURE REPORTING REQUIREMENTS
Any creditor that initiates a mortgage foreclosure action in the Superior Court of New Jersey must report to the Department of Banking and Insurance, on a quarterly basis and in a specific format (organized by municipality), information about the number of mortgage foreclosures initiated by the creditor.

FORBEARANCE PERIOD FOR HIGH RISK MORTGAGE FORCLOSURES
If a foreclosure action is filed subject to the Fair Foreclosure Act, on a “high risk” mortgage loan, must grant the borrower a six (6) month forbearance upon request of the borrower to permit the borrower  to pursue a work out, loan modification or refinance. 

A “high risk loan” includes those loans that are interest only with a future reset rate; has a reset mortgage interest rate that increases the interest rate; contains payment option plan or “pick a payment” plan; contains a negative amortization schedule; is a subprime loan; contains an enforceable prepayment penalty; or, is a high cost home loan as defined by the New Jersey Home Ownership Security Act A subprime loan would include a consumer transaction secured by the consumer’s principal dwelling if it carries a rate of interest that exceeds the average prime offer rate as of the date the interest is set by 1.5 or more percentage points for loans secured by a first lien or 3.5 percentage points for loans secured by a subordinate lien. .

During this six (6) month period, the interest rate on the subject mortgage can not increase and the creditor may take no further action to pursue foreclosure. Notice of the forbearance right must be served with the summons and complaint.  If the borrow requests such a forbearance, it shall begin upon receipt of the borrower’s request. 

The forbearance notice must be include whether the loan is eligible to receive forbearance, that the borrower has the right to request forbearance no later than thirty (30) days after receipt of the summons and complaint; contact information as to where to send the request and that upon receipt of the request, the creditor shall inform the court to place a six (6) month stay on the foreclosure action. Once the forbearance period begins the borrower and creditor must participate in the foreclosure mediation process.

Should the borrower vacate the property anytime during the forbearance period, the forbearance period shall end. The forbearance right will only be effective until February 16, 2012 at which time this right shall expire.

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It is hard to know when the proverbial “next shoe” will drop in the current economic crisis but recently credit lenders in my practice have experienced attempted policy rescissions for their mortgage insured accounts where suddenly and without any notice the private mortgage insurer  (the “Company”) has attempted to rescind its insurance policy on specific accounts. This is especially true for policies issued on mortgage accounts closed during 2005-2006, the peak years of residential real estate values. Their letter often contains language to the effect that the application’s underlying appraisal was “false, incorrect or incomplete” and was “material to the decision to insure” or something similar thereto. The reality is that private mortgage insurers now realize that they are likely to be hit with a rash of claims on loans they have underwritten since the real estate bubble has burst and home values in many geographic regions have declined precipitously. Rather than brave the tempest and honor their policies they have elected to get in front of the wave through this novel rescission approach.

 

Attempted private mortgage recessions such as these, need to be handled promptly by qualified counsel. The credit lender’s appraiser should be put on notice and invited to put his carrier on notice of the pending claim. The appraiser should also be requested to review the appraisal used for the original underwriting to make certain that the facts contained therein are accurate and to verify the comps used. There should simultaneously be a demand for the insurance company’s new appraisal. Payments should be made to the Company in the regular fashion even if they are returned initially. Counsel should review the Company’s Master Policy and any exclusions and give the Company any required notice pursuant thereto in anticipation of the pending litigation.

 

While this recommended course of action often puts credit lenders and their appraisers (often with mutual business interests and longstanding relationships) at odds, New Jersey’s Entire Controversy Doctrine makes a second lawsuit against the appraiser itself impossible. Counsel, experienced and sensitive to these relationships, can normally soften the prospects of the pending suit by a telephone call explaining the circumstances and promising full cooperation in the litigation prior to issuing his written demand.

 

If litigation is commenced it is imperative to ascertain if the financial institution has other insured loans with the Company and it is normally advisable to seek declaratory relief in the Complaint seeking to maintain coverage on all those other  loans where policies exist. Additionally, it may be time to take stock and ascertain the possible exposure of those other loans since the Company’s intentions to “rescind” its policies may signify well-founded concerns for its adequate capitalization. Prudence would suggest that a lender at least recognize the additional risks such mortgage insured loans may poise to a lender’s portfolio. Certain or all of these loans may well be singled out for “special handling”.

 

If the lender has any concern about the appraisal questioned or any other appraisals insured by the Company then it should hire an independent review appraiser to offer an independent view on the appraisal or appraisals. If there are any weaknesses in the case it is better to know up front. This may well affect the negotiation strategy with both the Company and the appraiser’s insurance company.

 

In these “recession” situations, it’s a simple “shoe-in” to seek guidance and move swiftly in order to preserve the credit lender’s rights. Normally the bank’s counsel will need a copy of the notifying letter, a copy of the appraisal used by the Company to determine that the underlying appraisal was “false”, a copy of the original appraisal and a copy of the Company’s Master Policy currently in effect with the credit lender.

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