How to Navigate New Jersey’s Foreclosure Crisis

The reasons for the volume of foreclosures may be debated by the pundits, but is most likely the result of a number of factors, some of which are listed below:

• The average cost of a home in New Jersey is one of the highest in the nation (New Jersey in fact boasts the fifth highest cost).
• New Jersey has the highest effective real estate tax rate in the nation at 2.29 percent.
• Annual taxes on a home worth $176,000 are the highest in the nation, as are annual taxes on homes priced at the state median value. (1)
• The cost of living was the third highest in the nation in 2014, and was 14 percent higher than other states.  The number of New Jersey residents who spent more than $2,000 per month on housing costs is more than twice the national average. (2)

These facts undeniably explain why New Jersey ranks as the state with the fourth highest average mortgage amount, following Hawaii, California and Washington, D.C. 

In fact, the average amount owed on a mortgage in New Jersey in 2016 was reported to be $212,291, compared to the national average mortgage amount owed of $164,217.  This makes New Jersey’s average mortgage 29 percent higher than the national average. (3)

With these statistics in mind, it is easy to understand why New Jersey leads the nation in the number of foreclosures. 

Further adding to the problem was the recession in 2008-2009, which resulted in many borrowers in New Jersey facing foreclosure. 

Not coincidentally, the biggest loss of jobs was in the financial sector in New York, where many New Jersey residents are employed. (4)

The back-log in foreclosures in New Jersey can be attributed to the sheer number of foreclosures, as well as other factors, all of which converged to cause the foreclosure crisis in this state.  Those factors included Hurricane Sandy, which occurred in the fall of 2012, and resulted in a stay of foreclosures in New Jersey, as well as a 90-day moratorium on foreclosures by the Department of Housing and Urban Development, Fannie Mae and Freddie Mac, as well as some other lenders. 

In 2010, there was the robo-signing crisis, which resulted in an administrative order “in response to the request by the Chief Justice for an examination into residential mortgage foreclosure document preparation and filing practices.”

This order was spurred by an order issued by then Presiding Judge of the General Equity Division, Mercer County, directing the “big six” lenders (Bank of America, JPMorgan Chase, Citi Residential, GMAC, OneWest Bank, and Wells Fargo) to show cause why their pending foreclosure actions should not be suspended. (5)

This resulted in a stay of all such foreclosure actions for more than a year from December 2010 until February 2012. 

Further delays in foreclosures in New Jersey occurred as a result of a decision rendered by the New Jersey Supreme Court in 2012, U.S. Bank, N.A., v. Guillaume, 209 N.J. 449 (2012). 

In that decision, the court found that many notices sent to borrowers pursuant to the New Jersey Fair Foreclosure Act were invalid because the notices did not provide the names of the lenders issuing same and, instead, identified the mortgage servicers.  As a result, thousands of foreclosure actions were again placed on hold while lenders awaited the end of the order to show cause process allowing borrowers to contest the curative notice remedy created by the court, (6) which finally came to a close in January 2014. (7)

Faced with the tremendous number of foreclosures, as well as the numerous delays caused over the years, the foreclosure crisis in New Jersey seems impossible to resolve. 

However, there are steps that lenders/servicers can take to move the cases along.  As outside counsel for lenders, the steps that we have found to be successful include:

• Servicers have been hiring attorneys to handle the modification process and/or to deal with contested foreclosures, separate and apart from their foreclosure counsel. 

  Given that those attorneys are not faced with the handling of hundreds of cases, and specialize in handling contested foreclosures, they are able to move the cases more quickly and attempt to resolve them.

• As part of that process, servicers should be sure their counsel are getting the requisite papers to borrowers’ counsel as soon as possible.
• Constant and consistent follow up with borrowers’ counsel is required. 

  Often times, counsel for borrowers are handling hundreds of cases on their docket and do not have any urgency to resolve the matters.  This does not benefit borrowers or lenders. 

It is really in the best interests of everyone involved to see if these cases can be resolved by modifications and, if not, to have them adjudicated promptly by the courts. 

While the lenders and their counsel are sometimes seen as “the bad guys,” too often, it is the lawyers representing borrowers in foreclosure actions who are the reason for the delays and, consequently, some of the back-log in New Jersey. 

Counsel for the lenders have to be vigilant about contacting borrowers’ counsel to move them along and notifying the courts if they are being ignored or delayed. 

More often than not, borrowers are unaware that the lenders need additional or more current documentation to be considered for a modification.  All the while, the amount they owe continues to increase instead of getting the loan back to a performing status. 

In a similar vein, the delays occasioned with contested foreclosures, where a modification is not possible, can be minimized by counsel for lenders moving quickly on the cases, as well as insisting that borrowers’ counsel timely respond to the motions.  Those counsel who consistently ask for adjournments and then fail to respond to the motions, should be held accountable by the courts in New Jersey, which have been struggling to reduce the back log and move the foreclosures along swiftly.