Oran Schwager

New Jersey homeowners had high hopes for A793/S1427. The bill, designated as the “Community Wealth Preservation Program,” aims to limit corporate homebuying and support affordable homeownership by relaxing procedures for certain individuals and nonprofits to purchase residential properties in foreclosure. However, on September 15, 2022, New Jersey’s Governor Phil Murphy issued a conditional veto on the bill, expressing concerns about its legality and practicality and sending it back to the state legislature for tweaks.

About the Legislation

The bill aimed to even the playing field between large investors and lower-income bidders and community nonprofits preserving affordable housing through several of mechanisms. As drafted, the bill would have allowed prospective owner-occupants who place the winning bid at a sheriff’s sale to make a 3.5 percent down payment and secure financing within 90 business days. Usually, a winning bidder must put 20 percent down and pay the balance within 14 days. In addition to the lower down payment, the bill capped the lender’s “upset price” for a foreclosed property at 50 percent of what is owed on the mortgage (plus interest, fees, and other costs), and gave defendants, their next of kin, and other qualifying entities the right of first and second refusal to purchase the property at the upset price. The bill also specifies that these new procedures would apply to sales for real estate-owned residential property.

The Conditional Veto  

In his conditional veto, Governor Murphy expressed serious reservations about the constitutionality and consequences of several of the proposed bill’s provisions.  Notably, the governor removed the section capping the “upset price,” stating that such a cap would, in effect, force lenders to take large losses on mortgages in default even when the market would enable them to recoup most or all of their investment. He further noted that the provision would cause lenders to factor potential losses into their lending decisions and restrict access to credit and mortgages in New Jersey. In lieu of capping the upset price, Governor Murphy recommended adding a requirement providing that the upset price be set at least two weeks prior to the foreclosure sale and that notice of that price be posted on the sheriff’s office website at that time.

Governor Murphy also removed the provision applying the bill’s procedures to sales of real estate-owned residential property, noting that applying procedures meant for sheriff’s sales to wholly private transactions is impractical, costly, and difficult to enforce, while doing little to further the bill’s objectives.

Mixed Reactions

Unsurprisingly, Governor Murphy’s exercise of executive powers was met with mixed reaction. The Housing and Community Development Network of New Jersey, an organization that supports the creation of housing choices and economic opportunities for low- and moderate-income community residents, through its President and CEO, Staci Berger, issued a statement expressing disappointment with the governor’s conditional veto. Initially worried that the bill could be exploited, with borrowers purposefully defaulting on their mortgages to have a family member or next of kin bid on the home for half of what they owe, The New Jersey Bankers Association  applauded the changes and stated that “most of their fears have been allayed.”

What Happens Next?

In a conditional veto, a governor suggests amendments to a bill, and the Legislature can accept the changes with a simple majority vote, or override the veto. To keep the original language, the legislature would need 27 votes in the Senate and 54 votes in the Assembly, thresholds that were unmet when it passed both chambers with a 22-15 vote in the Senate and a 46-30 vote in the Assembly. Governor Murphy remains hopeful, stating that “[i]n the coming months my Administration will continue to work in collaboration with the Department of Community Affairs, the Housing and Mortgage Finance Agency, the Housing Subcommittee of the Wealth Disparity Task Force, advocates, stakeholders, and the Legislature to develop additional, innovative mechanisms to promote affordable homeownership.”

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In US Bank Nat’l Ass’n v. Salvatierra, 2022 NY Slip Op 03023 (N.Y. App. Div. May 4, 2022), we successfully appealed an order of the Supreme Court, Queens County, which denied the plaintiff’s motion for default judgment and granted that defendant’s cross motion for leave to serve a late answer.

The Defendant raised several arguments to support the lower court’s order. Among other things, Defendant argued that his appearance and participation in mandatory foreclosure settlement conferences reasonably excused his failure to answer and that CPLR 3408(m) entitled him to serve and file a late answer. In the alternative, Defendant claimed that he was never advised by counsel at the settlement conferences of the need to file or serve an answer and that the lower court correctly granted his cross motion. We addressed each of these points in our appeal of the order. The Appellate Division agreed with our arguments and reversed, holding that the lower court improvidently exercised its discretion in finding that Defendant demonstrated a reasonable excuse for his default in appearing or answering the complaint. The Court further held that Plaintiff demonstrated entitlement to a default judgment and that the lower court should have granted its application seeking the relief.

To read the Appellate Court’s Order, click HERE.

In Wilmington Sav. Fund Soc’y, FSB v. Heampstead Prop. Ventures II, LLC, 2022 NY Slip Op 03142 (N.Y. App. Div. May 11, 2022), we successfully appealed a lower court order which dismissed a foreclosure complaint as time-barred by the statute of limitations.

The facts relevant to the appeal are straight forward. In 2007, a borrower took out a $320,000 mortgage on real property located in Hempstead, Long Island. The borrower eventually defaulted on his obligations, prompting Countrywide Home Loans, Inc. (“Countrywide”), the holder of the mortgage at the time, to initiate foreclosure proceedings on December 11, 2007. Countrywide later moved to discontinue the prior action, which was granted by court order dated June 10, 2013. A subsequent foreclosure action was commenced on May 7, 2019, against Heampstead Property Ventures II, LLC (hereinafter Heampstead Property Ventures), among others. The action proceeded in the ordinary course and plaintiff filed a motion seeking, inter alia, summary judgment. In opposition to the motion, Heampstead Property Ventures argued that summary judgment should be denied because the action was time-barred and on November 25, 2019, the lower court dismissed the action on those grounds.

In our appeal of the dismissal, we successfully argued that it was improper for the lower court to search the record and, in effect, award summary judgment in favor of Heampstead Property Ventures. We also addressed the merits of the untimeliness claims and argued that the voluntary discontinuance of the prior action revoked the acceleration of the debt. The Appellate Division agreed and the lower court’s order was reversed, on the law, with costs.

To read the Appellate Court’s Order, click HERE.

In U.S. Bank Tr., N.A. v. Chiramannil, 2022 NY Slip Op 03270 (N.Y. App. Div. May 18, 2022), we successfully defended against the defendant’s appeal of a lower court order granting plaintiff’s motion for summary judgment.

In Chiramannil, the defendant argued that the lower court’s order must be reversed because, among other things, the plaintiff failed to establish its compliance with statutory conditions precedent to foreclosure required under New York Real Property Actions & Proceedings Law (RPAPL) sections 1303, 1304, and 1306. The Second Department rejected each of the defendant’s arguments and affirmed the lower court’s order. More specifically, the Appellate Division held that plaintiff demonstrated compliance with RPAPL 1303 “by submitting an affidavit of service in which the process server attested that he served the defendant with the summons, complaint, and notice of pendency, along with a notice printed on colored paper that is other than the color of the summons and complaint, in compliance with RPAPL 1303, as well as a copy of the subject notice.”

The Appellate Division similarly found that the plaintiff proved compliance with RPAPL 1304 by submitting copies of the notices themselves together with the affidavit of an employee of its loan servicer, who attested to a standard office mailing procedure and averred that the notice was sent by both certified and first-class mail. With respect to RPAPL 1306, the Appellate Division found that the plaintiff demonstrated compliance with RPAPL 1306 by submitting a copy of a proof of filing statement from the New York State Department of Financial Services.

To read the Appellate Court’s Order, click HERE.