Tuesday, June 14, 2011

NJ Appeals Court: State Fair Foreclosure Act Inapplicable To Non-Owner Occupants

A recent ruling of the New Jersey appeals court serves as a reminder that the rights of New Jersey homeowners pursuant to the state Fair Foreclosure Act, (N.J.S.A. 2A:50-53 to -68) applies only to owner-occupants.

In rejecting the claims by a New Jersey couple challenging a foreclosure judgment, the court, in a nutshell, summarized thier legal analysis in this excerpt (bold text is my emphasis):
  • In other words, if the debtor or his or her family does not occupy, or plan to occupy the property when the loan originated, the Act does not apply, even if the debtor or a family member later takes up residence.

    On the other hand, even if the debtor or the debtor's family occupied or planned to occupy the property when the loan originated, the Act may cease to apply if the debtor and his family vacate the property and convert it to a rental or investment property. That is because the mortgage would cease to be a "residential mortgage" as defined once the property is no longer "occupied, or . . . to be occupied" by the debtor or the debtor's family. Ibid.

In modifying this position, however, the court hastened to add the following, in footnote 5 of their ruling:

  • One can imagine a scenario in which a mortgagor temporarily rents his or her property — for example, while taking on an extended work assignment away from home — but intends to return.

    Under such circumstances, the mortgage remains a "residential mortgage" because the property "is to be occupied" by the debtor. Defendants in this case presented no evidence of an intention to return to the mortgaged premises. Indeed, they apparently resided nearby on the same street in the same municipality.

For the ruling, and the court's full analysis of the New Jersey law on this point, see Aurora Loan Services, LLC v. Einhorn, No. A-5586-09T1 (NJ Sup. Ct., App. Div. June 9, 2011).