Introduction

On January 12, 2024, Governor Murphy signed legislation establishing the “Community Wealth Preservation Program,” which aims to make it easier for homeowners in residential foreclosure actions, along with their families, “their next of kin, tenants, and other prospective owner-occupants” to purchase a foreclosed-upon property. P.L.2023, c.255. The Community Wealth Preservation Program ("CWPP") took effect immediately upon signature and grants a foreclosed-upon defendant additional time to buy back the home and special financing opportunities, creating potential consequences for financial service organizations in New Jersey. The version of the law as signed was significantly improved from the original legislation that had been conditionally vetoed by the Governor in 2022, particularly with the removal of the language that would have required a 50% write down by financial institutions.

Because of the increased time allowed for the foreclosed-upon defendant to buy back the home and the special financing implemented in this law, there are various considerations for financial service organizations in New Jersey for properties that reach sheriff’s sale.

The CWPP Law

The Community Wealth Preservation Program amends N.J.S.A. 2A:50-64 -- a section of the 1995 New Jersey Fair Foreclosure Act ("FFA" Procedures for sale) and N.J.S.A. 22A:4-8 (Fees and mileage of sheriffs and other officers) and attempts to make it easier for those with ties to a foreclosed-upon property to remain in possession of that property. It also created a new section which provides immunity to a creditor or its agent who is responsible for the care, maintenance, security, and upkeep of the property if it becomes vacant and abandoned, to peacefully enter the property and exercise reasonable care in doing so. It clarifies that any persons bidding on the property are not permitted to enter the property prior to the sheriff's sale.

The new law has a few key elements:

Right of first refusal ("ROFR"): The law gives the foreclosed-upon individual(s) of a residential property, the next of kin, or a tenant of the property the first right of refusal to purchase the property for the original upset price or at the final starting upset price, whichever is less. This right survives even if there is a delay, whereby the foreclosed-upon defendant will retain the first right of refusal until the rescheduled date of sale.

The upset price is the “minimum amount that a foreclosed-upon property shall be sold for in a sheriff’s sale as determined by the foreclosing plaintiff.” It must be posted online at least four weeks before the sale. The upset price also must not increase by more than 3 percent from the price initially listed online or in a mailed notice. The foreclosing plaintiff is prohibited from contacting the foreclosed-upon defendant, next of kin, or nonprofit community center to ask if they will participate in the sheriff’s sale. The foreclosing plaintiff must also disclose whether the property is vacant, tenant-occupied, or owner-occupied before the sale. The successful bidder must also be granted access to the property if it is vacant and the lender has the capability to grant access.

To exercise the right of first refusal, the individual must intend to live in the residence for at least 84 months and put 3.5 percent of the upset price down as a deposit, with the remainder due within 90 business days. Additionally, a tenant or successful bidder who finances the purchase of the property shall receive eight hours of homebuyer education and counseling through a United States Department of Housing and Urban Development ("HUD") certified agency. If, after 90 days, the bidder fails to pay the entire balance, the bidder shall forfeit the deposit and shall be responsible for the payment of accrued interest incurred as a result of the sale being void unless the failure to close on the financing is of no fault of their own, “which includes, but is not limited to, the appraised value of the property being less than the purchase value of the property or the financial institution denying financing, in which case the bidder shall be refunded the deposit on the property and shall be responsible only for the payment of accrued interest.”

If a bidder is not the foreclosed-upon defendant, next of kin, or nonprofit development corporation, the property deed will state that the property may not be sold for 84 months from the date of the sheriff's sale. A bidder other than the foreclosed-upon defendant, next of kin, and Nonprofit Community Development Corporation who financed the purchase of the property and did not occupy the residence for at least 84 months will be assessed a fine of $100,000 for the first violation and $500,000 thereafter. However, these fines will not be assessed against a bidder who finances the purchase in good faith, but is forced to leave the property because of the death of the bidder or the bidder’s spouse or child; disability of the bidder or the bidder’s household; divorce or legal separation; military deployment; a change in the employment of the bidder or a member of the bidder's household which results in a reduction of income or a need to move out of the state.

Financing: One may finance the purchase of residential property through a sheriff’s sale if the bidder provides proof that they have been pre-approved by a financial institution regulated by the Department of Banking and Insurance of the federal asking agency. To move forward with the purchase of residential property through financing, the bidder must be preapproved from the amount of the original upset price listed in the notice or the final starting price, whichever is less; not submit bids higher than the amount the bidder has been pre-approved for; and must provide valid photo identification matching the pre-approved financing forms.

Nonprofit community development corporation ("NCDC"): The right of second refusal is given to a nonprofit community development corporation that has a written agreement with a foreclosed-upon defendant, next of kin, or tenant agreeing to allow the foreclosed-upon individual(s) to reside in the property and/or negotiate an affordable lease agreement with the foreclosed-upon individual. An NCDC is a “nonprofit organization whose mission includes community revitalization through the restoration of vacant and abandoned property to create or preserve affordable housing, as indicated in the corporation’s most recent form 1023 filing provided to the United States Internal Revenue Service.” The right of second refusal may be exercised prior to the opening of bidding if the nonprofit corporation pays a 3.5 percent deposit with the remaining balance due within 90 business days via cash, certified check, or wire transfer.

Fines will be assessed against the NCDC if it does not restore as needed and sell the property to a household earning less than 120 percent below area median income or rent the property as an affordable housing unit to a household who earns no more than 100 percent below area median income if the property is vacant or abandoned. Additionally, if the foreclosed-upon defendant or a tenant occupies the residence at the time of sale, and the NCDC does not have an agreement with the individual, the NCDC shall negotiate an affordable lease schedule allowing the individual to continue to occupy the residence. The foreclosed-upon defendant or tenant has 120 days to respond to an offer made by an NCDC, or that individual will be removed.

Finally, if an NCDC purchases the residence, the NCDC “shall ensure that, in any future sale of the property pursuant to subparagraph (a) of paragraph (1) of this subsection, the property be subject to a renewable deed restriction, with the minimum number of affordability years being 30 years and with the option to renew, requiring any future property owner to sell the property to a household earning no more than 120 percent below area median income or rent the property as an affordable housing unit to a household who earns no more than 100 percent below area median income.”

Interest deferral: No interest shall accrue on the balance of the sale of the property until 60 business days have passed following the date of the sale. The bidder will then have 30 business days to fulfill the balance. If a bidder misses this timeline, the bidder will forfeit the deposit on the property and shall be responsible for the payment of accrued interest incurred.

Notice: The law has been amended to require that a Notice of a Sheriff's Sale be sent to the foreclosed-upon residential property and to the primary address of the foreclosed-upon defendant. The new amendments also specify that the exterior of the letter giving notice of the sheriff’s sale must state that it is notice pursuant to the sale, and this language must comply with the Fair Debt Collection Practices Act. 15 U.S.C. §§ 1692-1692p

Fees: When a sale is made at a sheriff’s sale, the Sheriff can now charge 10 percent in fees on sums not exceeding $5,000 and 5 percent on sums exceeding that amount. A minimum fee of $150 will also be charged for any executed sale. If the lender is the winning bidder, the fee will also be $150.

You can read the new amendment to the existing statutes here.