Before delving into the foreclosure process in New Jersey, it is helpful to keep the transactional context in mind. New Jersey is a lien theory state, which means that the lender takes a security interest in the property for the underlying loan. The document that places the lien on the property is what is commonly referred to as the mortgage. The lender then files the mortgage as documented evidence of the debtor’s obligation for repayment. The terms of that debt repayment is set forth in the note.
What Must the Lender Do to Pursue a Foreclosure Action?
For a lender to consider a foreclosure action, the borrower has presumably missed several mortgage payments. Three to six missed payments will generally force a lender’s hand to begin foreclosure proceedings. In New Jersey, a lender must seek recourse through the court system in order to obtain a final foreclosure judgment. The length of the foreclosure process can vary depending on various factors, particularly if the foreclosure is contested by the debtor or if the debtor files for bankruptcy. Given the economic recovery over the last several years, New Jersey is one of the most backlogged states for processing cases. The Superior Court in New Jersey has jurisdiction over foreclosure cases.
Under the New Jersey Fair Foreclosure Act though, the lender must abide by notice procedures prior to filing with the court. The lender must notify the borrower 30 days in advance of initiating the foreclosure and include particular information described in N.J.S.A. 2A:50-56.
Filing a Complaint
Like initiating any other civil action, one or more lenders file a complaint except in these cases, a lis pendens accompanies the complaint. A lis pendens is a recorded document that provides public notice that the property is being foreclosed on. A foreclosure complaint seeks reclamation rights to take back the property. The complaint substantiates these rights generally by stating the background and including the relevant documents demonstrating the defendant has defaulted. Foreclosure complaints must be served on any party who has a legal interest in the property. The lender will try to serve the complaint with a summons on the defendant personally or if granted by the Court, through publication in a local newspaper.
The Defendant Must Answer Within 35 Days
A defendant must file an answer within 35 days of being served with the complaint unless an extension is granted by the court prior to the 35th day. If the defendant contests the foreclosure, the Office of Foreclosure transfers the case to a judge in the Superior Court wherever the property is located. Hearing dates and a trial date is set for both parties to be heard on whether the foreclosure action is within the lender’s rights. If the defendant does not answer within that timeframe, a default will be entered by the Court. Once default is entered, the plaintiff must wait another 45 days before entering final judgment.
Still, a borrower has the opportunity to cure the default. The lender must notify the borrower of this right prior to filing a request for entry of final judgment. Next, a writ of execution is sent to the Sheriff to initiate the sale of the property at auction. At least ten days before the foreclosure sale, a Notice of Sale must be served upon the borrower so they can attend the sale if they so choose. Generally, the lender will buy the property back. The deed to the property will be transferred to the lender, who in all most likely acquired the property, within a few weeks after the sale.
Rarely will the sale of the property at auction satisfy the amount of the loan. In those instances, a creditor can file an action to recoup the deficiency. Deficiency actions must be brought within three months of the foreclosure sale. New Jersey however has a “Fair Market Credit” doctrine set forth under N.J.S.A 2A:50-3. Under this doctrine the defaulting borrower is given credit for the fair market value of the property regardless of what the bid at the foreclosure sale was. The defendant must raise this as an affirmative defense, which means the defendant has the burden of proof in limiting their liability for the deficiency.
Are There Ways to Avoid Foreclosure Proceedings?
Some options to avoid or mitigate foreclosure proceedings include:
- Redemption. Under N.J.S.A 2a:50-4, a borrower has a right of redemption to reclaim that property within ten days after the foreclosure sale by making payment in full of the sum of the unpaid loan plus costs. Given the realities of financial distress, this is likely impractical however if the person has financial resources from family or outside investors, the debtor can reclaim the property.
- Mediation. New Jersey’s foreclosure mediation program offers the parties an opportunity to avoid the costs of litigation and perhaps work out a refinancing plan. The borrower must make the request to participate in mediation within 60 days of receiving the complaint. The foreclosure still ensues, however it is another avenue to resolve the case.
- Bankruptcy. The automatic stay is triggered immediately on the filing of the bankruptcy petition and automatically stops all acts and proceedings against the debtor and the debtor’s property. The automatic stay only applies to prepetition events and does not bar action against the debtor for anything occurring after the date the debtor filed the bankruptcy petition.
A lender must next cease all collection efforts immediately and alert counsel to cease all foreclosure proceedings. Consult with your attorney about filing a motion to seek relief from the automatic stay. Bankruptcy offers more leverage for the borrower to work out a loan modification.
To Learn More About the Foreclosure Process in New Jersey, Contact Us Today
Consult with an attorney who can provide advice about the relevant laws and legal remedies that may be available to lenders and debtors. The foreclosure process can be daunting for the property owner and tedious for the lender who has extended the credit.