Complying With New Jersey’s New Commercial Foreclosure Notification Law

New Jersey recently enacted a new law that requires lenders to notify local municipalities regarding the foreclosure of commercial properties...

New Jersey recently enacted a new law that requires lenders to notify local municipalities regarding the foreclosure of commercial properties. The legislation (Assembly Bill 2877), which Gov. Phil Murphy signed into law on January 18, 2022, also requires lenders to maintain the exterior of the commercial properties and authorizes municipalities to establish ordinances requiring the registration of foreclosed properties.

Notification Requirements for Creditors

The new law imposes several new obligations on commercial lenders. Within 10 days after serving a summons and complaint in a foreclosure action on a commercial property, a creditor must notify the municipal clerk of the municipality or other responsible local official. This notice must contain the full name, and contact information for the representative of the creditor who is responsible for receiving property maintenance and code violation complaints, and the person retained by the creditor for property care, maintenance, security or upkeep. If the creditor is out-of-state, the notice is required to specify an in-state representative responsible for the care, maintenance, security, and upkeep of the exterior of the commercial property if it becomes vacant and abandoned.

Assembly Bill 2877 requires the municipal clerk to notify a foreclosing creditor in the event that a commercial property in foreclosure becomes vacant and the exterior of the property is found to be a nuisance or in violation of any applicable State or local code.  The creditor is then responsible for abating the nuisance or correcting the violation.  If the creditor fails to remedy the violation within 30 days, the law permits the municipality to impose penalties allowed for the violation of municipal ordinances. Additionally, if the municipality expends public funds in order to abate a nuisance or correct a violation on a commercial property in situations in which the creditor was given appropriate notice, but failed to abate the nuisance or correct the violation as directed, Assembly Bill 2877 provides the municipality with the same recourse against the creditor as it would have against the title owner of the property to enforce a lien pursuant to current law.

New Law Authorizes Property Registration Ordinances for Commercial and Residential Properties

The new law also authorizes a municipality to adopt an ordinance to: create a property registration program for the identification and monitoring of residential and commercial properties in foreclosure; regulate the care, maintenance, security, and upkeep of the exterior of vacant and abandoned residential and commercial properties in foreclosure; and impose property registration fees on creditors, on an annual or semi-annual basis. 

In essence, the new law repealed N.J.S.A. 40:48-2.12s, which governed residential properties, and made the registration and maintenance ordinance language applicable to both residential and commercial properties. Any ordinance adopted for the above purposes must: 

• Require the creditor filing a summons and complaint in an action to foreclose to register the residential or commercial property with the municipality’s property registration program as a property in foreclosure;
• Require the creditor to promptly update the property registration program in the event of a change in the contact information of a representative, agent, or individual authorized to accept service on behalf of a creditor required to register under the property registration program; 
• Require the creditor filing a summons and complaint in an action to foreclose to, if the registered property becomes vacant and abandoned, update the property registration with the municipality to reflect the change in the property’s status;   
• Require that the creditor filing a summons and complaint in an action to foreclose would be responsible for the care, maintenance, security, and upkeep of the exterior of the property if the property is vacant and abandoned at any time while the property is registered with the property registration program;
• Require a creditor located out-of-State to be responsible for appointing an in-State representative or agent to act for the foreclosing creditor; 
• Identify any requirements that the municipality imposes on the creditor filing a summons and complaint in an action to foreclose on a property, that is or becomes vacant and abandoned, relating to the care, maintenance, security, and upkeep of the exterior of the property, including, but not limited to, any requirements to secure the property against unauthorized entry, post a sign affixed to the inside of the property and visible to the public indicating the name, address, and telephone number of the creditor or an out-of-State creditor’s in-State representative or agent for the purpose of receiving service of process, or acquire and otherwise maintain liability insurance by procuring a vacancy policy, covering any damage to any person or any property caused by any physical condition of the property; 
• Identify any fees that may be imposed on the creditor in connection with the property registration program; and
• Define the criteria, in accordance with guidance provided in the law, under which a property would be considered vacant and abandoned.

Assembly Bill 2877 authorizes a municipality to contract with a private entity to assist in the implementation and administration of the property registration program.  The municipality can then delegate to the private entity any duties under the program, including, identifying properties subject to the registration requirements, maintaining and updating property registrations, communicating with creditors or appropriate representatives, invoicing and collecting payment from the creditors for such properties, and monitoring compliance.  The new law restricts the authority of private contractors to retain fees, and expressly authorizes the Local Finance Board to adopt regulations concerning property registration contracts. 

The new law also authorizes a municipality to impose an annual fee on a creditor required to register a property under the associated ordinance. The fee may not exceed: $500 per property annually for any property that is required to be registered because a summons and complaint in an action to foreclose was filed by the creditor; and an additional $2,000 per property annually if the property is vacant or abandoned when the summons and complaint in an action to foreclose is filed, or becomes vacant and abandoned, as defined in the associated ordinance, at any time thereafter while the property is in foreclosure. 

Key Takeaway

The new law imposes significant new compliance obligations on lenders. While the desire to combat blight is widely recognized as a worthy goal, prior regulations addressing so-called “zombie properties” have been controversial and subject to legal challenges. We encourage lenders to closely monitor this area of law and contact experienced legal counsel with any compliance concerns.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact Matt Kane or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.