Amendment To NJ Tenancy Complaint May Create Hurdle For Foreclosure Rescue Operators Attempting To Boot Homeowners In Sale Leaseback Deals Gone Sour

A press release from The Law Office of Michael D. Mirne discusses the hurdles foreclosure rescue operators in New Jersey may be facing when attempting to boot homeowners from their houses in the context of sale leaseback, "home saver" arrangements:

• Under ordinary circumstances, a landlord can expect that an action filed for non-payment of rent will result in a Judgment for Possession within about 4 weeks of the time the action is filed. The expediency of this process is attractive to most landlords who are often struggling to pay their own bills, and cannot afford to subsidize a tenant who is not paying rent. At an eviction trial, the Judge reads a preliminary set of instructions, which includes the statements that (1) he or she may not force the landlord to wait for rents, and (2) all outstanding rents must paid by the day of Court or the tenant will be evicted.

• However, Landlords who have acquired title to the property from the tenant,(1) and Landlords who have given the tenant an option to purchase may not have the right to have their cases heard in Landlord Tenant Court.

• The body of the Tenancy Complaint has been recently amended to include an inquiry as to whether the Landlord acquired title to the property from the Tenant, or alternatively, if the Landlord gave the tenant an Option to Purchase the Property. Since both of these conditions would substantially affect the equitable property rights of the tenant, the cases brought under these conditions are not easily resolved on a summary basis.

• To put it simply, Judges in Tenancy Division, who are often swamped with a heavy caseload of relatively simple matters, are reluctant to make the factual inquiries necessary to resolve a dispute when the ultimate issue affects the ownership of the property.(2) The unfortunate(3) result is that these matters are routinely transferred out of Tenancy Division into the Law Division (or even worse, the Chancery Division), where the parties can spend the next 12 months exchanging discovery, attending Court Ordered mediations, and waiting for trial. More importantly, the Tenancy Judge very often orders that the tenant does not need to pay rents to the Landlord until the Law Division has an opportunity to rule of the issues of the case. Under the Rules of Court, the Transfer out of Tenancy Division can be requested by the Judge, sua sponte (on his own initiative), or by one of the parties (usually the tenant).

For the press release, see Information for Landlords who Acquire Title from their Tenants.

(1) A typical sale leaseback arrangement.

(2) A judge in the Tenancy Division may lack jurisdiction to make rulings that adjudicate title to property. Further, regardless of what judicial division hears the case, a court could make a finding that the sale leaseback foreclosure rescue deal between the operator and the homeowner is an equitable mortgage, in which case an eviction of the homeowner would be rendered legally impossible without the operator first filing a lawsuit to foreclose on its equitable mortgage (exactly the scenario the operator wanted to avoid in the first place when it structured the financing transaction with the financially strapped homeowner as a sale leaseback, coupled with an option to repurchase).

(3) Or fortunate, depending on one's perspective.