Partially Veto of the Community Wealth Preservation Program

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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