New Jersey is ranked 38th in the nation for homeownership rates, staying at or just below the national average for many years. That said, home buyers in the Garden State are often looking for alternative funding sources to help them buy a piece of the American dream. Hard money loans are gaining popularity because they often fund faster than a traditional mortgage loan and they also usually take a lot less paperwork than is required by the big bank lenders. These loans are offered by individuals and small group investment firms and require that the buyer put up their home or other owned real estate as collateral, to secure the loan. Hard money loans are a good fit for buying a home and they can also work for renovations of an existing property.
New Jersey Foreclosure Laws
In New Jersey, all foreclosures must be processed and managed through the court system, making it a judicial foreclosure state. Some states allow lenders seeking a foreclosure to manage the process outside of the courts, keeping things moving very fast and often giving homeowners in jeopardy very little time or recourse to save their home. In New Jersey, the courts keep timelines and required notices in place so that homeowners have a chance to save their homes when possible.
Property Redemption after Foreclosure Sale
Some states permit the borrower to redeem (repurchase) the home within a certain period of time after the foreclosure. In New Jersey, the defaulting borrower can redeem the home in the following circumstances. The borrower can redeem up until the court confirms the sale. After the foreclosure sale, there is a 10-day period during which the homeowner can file a motion objecting to the sale. New Jersey Court Rule 4:65-5. After the 10-day period, the court must confirm the sale to finalize it. The New Jersey Supreme Court has determined that foreclosed homeowners get the right to redeem:
- within the 10-day period after the sale, and
- up until the court issues an order confirming the sale if objections are filed under the rule. See Hardyston Nat. Bank v. Tartamella, 56 N.J. 508 (1970).
The borrower can still redeem, even if the foreclosing party gets a deficiency judgment. A foreclosed borrower can bring a separate action for redemption within six months of the entry of a deficiency judgment. N.J. Stat. Ann. § 2A:50-4.
Deficiency Judgments in New Jersey
When a home is sold in foreclosure, it might not bring in enough money to cover what was owed by the homeowner. In this case, it is possible to get a court order that forces the homeowner to pay out the remaining balance, even if they have lost the home to foreclosure. In New Jersey, the lender can bring a separate lawsuit for a deficiency judgment within three months after the foreclosure sale or, if confirmation of the sale is required, from the date of the confirmation of the sale. N.J. Stat. Ann. §§ 2A:50-2, 2A:50-2.1. However, if the foreclosing party obtains title to the property through an optional foreclosure procedure, it cannot seek a deficiency judgment. N.J. Stat. Ann. § 2A:50-63.
The homeowner can also contest the amount of deficiency owed by answering the deficiency suit and introducing evidence regarding the property's fair market value. The court will then determine the amount of the deficiency by subtracting the fair market value of the home from the outstanding debt. N.J. Stat. Ann. § 2A:50-3. However, keep in mind that if you challenge the amount of the deficiency, you'll lose your right to redeem. N.J. Stat. Ann. § 2A:50-5.
Deed in Lieu of Foreclosure
One of the options for homeowners facing foreclosure that does not involve keeping the home but can save a lot of time, money and stress is called a deed in lieu of foreclosure. This is an agreement between the borrower and lender where the homeowner volunteers to vacate the property and gives possession over to the lender so that they can sell it as needed. In some cases, this is referred to as "cash for keys" because homeowners can sometimes negotiate a small cash payout to help offset the costs of moving out.
Grace Period Notice
There is a sort of grace period built into the foreclosure process in New Jersey because it is a judicial foreclosure state. All parties have clear requirements to give notice and that includes a 30-60 day waiting period between the first notice of intent to foreclose until the actual proceedings can begin. As such, that built in time allows a chance for the homeowner to make an arrangement with the lender to keep the home or to at least avoid foreclosure court costs. It is important to seek qualified legal counsel in these situations.
Protections for Military Service Members
New Jersey law provides protections similar to the Federal Service Members Civil Relief Act to military service members. It specifically allows service members to postpone court proceedings and that the period of military service is not included in the redemption period. The law applies to service members on federal active duty or in state military service pursuant to the governor's orders. N.J. Stat. Ann. §§ 38:23C-1 to 38:23C-26.
High Risk Mortgage Protections
There are not any special protections in place for New Jersey homeowners that have a high risk mortgage, one with very high interest, difficult balloon payments or questionable lending practices like allowing for borrowers with a negative credit history. However, since it is a judicial foreclosure state, everything has to go through the courts, allowing for some built in protections for all homeowners facing this difficult situation.
Additional State Laws
The maximum legal interest rate on a loan in New Jersey is 30%. In New Jersey, it is considered criminal usury if a lender charges an interest rate of 30% or more to an individual, or 50% or more on an entity (a corporation, limited liability corporation, etc.). In addition to paying a fine, the lender may only recover the loan principal, and forfeits the right to interest on the loan.
New Jersey is not a homestead state. New Jersey state law does not offer homestead protections. Instead, New Jersey homeowners who seek homestead protections may do so through the federal government (up to $22,975 --though this amount is adjusted every three years). In general, New Jersey homeowners would receive homestead protection by filing for Chapter 7 bankruptcy and using federal exemption statutes. In the case of a Chapter 7 bankruptcy, the equity in a home is generally considered to be an asset that can be used to pay creditors. "Equity," in this case, refers to: [Overall Value of the Home] - [Mortgage Balance].
Therefore, if you have less than $22,975 of equity in your home, the federal homestead exemption protects your home from being sold to pay debts. If you have more than $22,975 of equity, the bankruptcy trustee can sell your home and pay off your creditors with the money from the resulting sale (though you will get to keep the $22,975 exempted by federal law).
Lender Licensing Requirements
The New Jersey Department of Banking and Insurance (DOBI), supervises and regulates all aspects of the mortgage broker license. Their offices are located in Trenton. Out-of-state mortgage brokers must still be licensed in New Jersey in order to conduct business within the state. All New Jersey mortgage licenses are handled through the National Mortgage Licensing System.