July 10, 2026

In a significant decision for New Jersey’s foreclosure industry, the Appellate Division (the “Court”) affirmed that Section 2A:50-64(g) of the Community Wealth Preservation Program Act (“CWPP”) is unconstitutional as applied because it violates the Takings Clauses of the United States and New Jersey Constitutions. The trade organization American Institute of Servicing and Legal Executives (“AISLE”), represented by Friedman Vartolo LLP, participated in the appeal as amicus curiae. The challenged provision granted nonprofit community development corporations a statutory right of second refusal to purchase foreclosed properties at the lender’s upset price before competitive bidding could occur. The Court concluded that this mechanism deprived property owners of surplus equity and prevented junior lienholders from recovering surplus proceeds that otherwise could have resulted from an open sheriff’s sale. The Court relied on Tyler v. Hennepin County and 257-261 20th Ave. Realty, LLC v. Roberto  and held that: (1) New Jersey recognizes a protected property interest in surplus equity,  and that (2) the CWPP failed to provide constitutionally adequate compensation when that interest was extinguished. 

 The State argued that existing procedural safeguards, including motions under Rules 4:64-1(e) and 4:65-5, adequately protected the interests of property owners and junior lienholders. The Court rejected that argument and found those remedies both discretionary and incapable of preventing the constitutional injury created when an eligible nonprofit exercised its statutory right of second refusal. Unlike the statutory scheme upheld in Nelson v. City of New York, the CWPP did not provide a mechanism for property owners or junior lienholders to recover surplus value after the sale. Instead, the Court found that the statute effectively eliminated competitive bidding by allowing qualifying nonprofits to acquire properties at the upset price. This thereby prevented the realization and distribution of surplus equity. 

 The decision preserves the remainder of the CWPP through its severability clause. This means that the CWPP’s right of first refusal for homeowners, next of kin, and tenants remains in effect while only the nonprofit right of second refusal is invalidated. Absent further appellate review, foreclosure sales in New Jersey will no longer permit nonprofit community development corporations to invoke Section 2A:50-64(g) to purchase properties at the upset price ahead of competitive bidding.  

 For lenders, servicers, investors, and junior lienholders, the decision restores the opportunity for competitive sheriff’s sales to generate surplus proceeds and reinforces that constitutionally protected surplus equity cannot be eliminated through the statutory foreclosure process. Friedman Vartolo LLP’s representation of AISLE as amicus curiae in the appeal also represents our continued advocacy for the interests of the mortgage servicing industry. 

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