On September 6, 1995, the Governor signed the Fair Foreclosure Act which dramatically alters the procedures for residential mortgage foreclosures. The Act, which takes effect on December 5, 1995, is in response to the fact that the residential foreclosure process in New Jersey is the most time consuming in the country. In particular, a Federal National Mortgage Corporation study reflected that the average length of time necessary to complete a residential foreclosure in New Jersey was 610 days, as compared to 270 days to complete such a foreclosure in other states.
While the major portions of the Act, including the optional sale procedures, are only applicable to residential mortgages, new procedures and safeguards for borrowers will be applicable in commercial situations where residential mortgage is granted to a lender as security for obligations of a borrower/guarantor, even if the underlying purpose of the loan was not for consumer needs. A "residential mortgage" is defined by the Act as a mortgage on a 1-4 family dwelling occupied by the borrower or a member of the borrower's immediate family. On its face, the Act purports to apply to all residential mortgages secured by New Jersey property wherever made an to all such mortgages in existence at the time of passage of the Act.
Optional Foreclosure Procedures Without Sale
The major step taken by the Act to eliminate the time for completion of a residential foreclosure is the so-called "optional foreclosure procedure without sale." If this procedure is elected, the need for a sheriff's sale is eliminated and the property may be sold and conveyed through an order obtained from the Office of Foreclosure of the Superior Court. The optional foreclosure procedure without sale may only be elected when the borrower has (i) abandoned the mortgaged property, (ii) voluntarily surrendered the property through a deed-in-lieu of foreclosure, or (iii) no equity in the property. Whether a property has been abandoned and whether there is any equity in the property may be established by an affidavit of the lender, which must be submitted to the Office of Foreclosure in connection with the request of the lender to proceed pursuant to the optional foreclosure procedure without sale.
If the optional procedure is elected, the Office of Foreclosure may enter an order for redemption fixing the amount, time and place for redemption of the property, which shall not be less than forty-five (45) days nor more than sixty (60) days after the date of the order. The order for redemption must be mailed to the borrower and all other defendants at their last know address and the notice must (i) advise the defendants, including the borrower, that the lender is proceeding under the optional sale procedure, (ii) advise all defendants of the terms and conditions under which a public sale may be requested and (iii) clearly state that no request for a public sale made after thirty (30) days from the date of service of the order will be granted, excepted for good cause.
If a defendant wishes to request a public sale, that request must be made within thirty (30) days of the date of the order for redemption. If a public sale is properly requested, the Office of Foreclosure shall enter a judgment of foreclosure, which establishes a public sale in accordance with applicable law. Any person requesting such a sale, other than a natural person who is the owner of the property, shall be required to post a cash deposit or bond prior to the date fixed for redemption equal to ten percent (10%) of the amount found due int he order for redemption.
In the absence of any redemption or request for public sale, and upon proof of mailing of the order for redemption to all defendants, the lender shall be entitled to a judgment debarring and foreclosing the equity of redemption of the defendants in the property and adjudging the lender to be vested with a valid and indefeasible estate in the mortgaged property. This may be accomplished without the need for any public sale. The borrower will, however, be entitled to redeem at any time up until the last day on which such judgment is entered.
If judgment is entered vesting title in the lender pursuant to the optional sale procedures, the debt which was secured by the mortgage shall be deemed satisfied and the lender shall not be permitted to institute any further or contemporaneous action for the collection of the debt.
Procedural Safeguards for Borrowers
As a "trade-off" for the potentially quicker foreclosure procedures described above, the Act provides that al least thirty (30) days prior to the acceleration of the maturity of any residential mortgage obligation and the commencement of any foreclosure or other legal action, the lender must give the residential mortgage debtor notice of intention of foreclose. The notice is quite detailed an must include, among other things, a description of the debt; the nature of the default; the mount necessary to cure the default; the date before which default must be cured (which must be not less than 30 days from the notice); and a statement saying that if default is not cured the lender may exercise remedies. The notice of intent to foreclose seems to be required even as to a commercial loan which is secured by a mortgage on a borrower's/guarantor's residence and notwithstanding any other provisions in the loan documents. The Act specifically provides that any attempted waiver of the procedural safeguards of the Act (including attempted waiver of the right to receive a notice of intent to foreclose) is void and unenforceable.
In addition to elaborate notification procedures prior to exercising remedies, the Act permits reinstatement of the residential mortgage loan by payment of the amount which would have been due in the absence of the default at the time of payment or tender, together with court costs and attorney fees in amounts not to exceed the amounts permitted by the New Jersey Court Rules. Also, late charges, if provided for in the note, must be paid. Simply stated, the mortgage loan may be reinstated by payment of the actual past due amount rather than the accelerated total amount. If the payment cure occurs, the default is nullified, as of the date of the cure and any acceleration of the underlying obligation is rescinded. The cure right may be exercised only once every eighteen (18) months as to any particular mortgage. The right to cure by payment of this amount shall exist at any time up to the entry of final judgment or the entry by the Office of Foreclosure of an order for redemption.
Even in a non-contested foreclosure, additional borrower safeguards for residential mortgages are provided. Specifically, when the lender applies for entry of final judgment of foreclosure in an uncontested matter, notice, mailed at least fourteen (14) days prior or submission of the proper proofs for entry of the foreclosure judgment, shall be sent to the borrower, final judgment will be entered. Within ten (10) days after receipt of that notice, the borrower may mail to the lender a statement in which the borrower in good faith certifies as true that there is a reasonable likelihood that the debtor will be able to provide payment necessary to cure the default within forty-five (45) days of the date of notice. If a lender receives such a notice from the borrower, the lender may not submit proofs to the Office of Foreclosure as may be necessary for final entry of judgment of foreclosure until at least forty-six (46) days after the date of the notice to the borrower.
Provisions of General Application
In addition to the above specific procedures and provisions which relate only to residential mortgages, the Act also attempts to streamline and make more uniform the processes through which the various county sheriffs handle all mortgage foreclosures. In particular, the sheriff must schedule a sale within 120 days of receipt of the writ of execution. If the sheriff is unable to comply with that time frame for establishing a sale date, a special master may be appointed upon order of the Office of Foreclosure. Up to two (2) adjournments of sale may be granted by the sheriff, but only for a period of fourteen (14) days each, rather than thirty (30) days as currently permitted. A standard form of sheriff's deed is included in the Act.
Both the United States and the State of New Jersey may enter appearances through a letter rather than a formal answer. Unless a contesting answer is filed by either governmental authority, the appearance letter will be deemed sufficient to allow the foreclosing plaintiff to proceed as if the State of New Jersey or the United States had filed a noncontesting answer.
Other miscellaneous provisions of the Act extend the effective date of a lis pendens from 3 to 5 years. In what may be a particularly useful provision for lenders, the Act states that unless there is an express agreement to the contrary by the parties, the debtor may tender and the lender may accept partial payment of any sum owing and due without either party waiving any rights. This should statutorily overrule any waive arguments which may arise where a lender accepts partial payment of amounts due on mortgage indebtedness.
The Attorney General, in consultation with the Commissioner of Banking, is to promulgate regulations so as to implement the Act. The Act will become effective ninety (90) days after enactment (i.e., December 5, 1995).
