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Fair Foreclosure Act Construed: Sturdy Saving Bank v. Roberts
The Fair Foreclosure Act [FFA], N.J.S.A. 2A:50-53 et seq., governs foreclosure proceedings for most residential mortgages in New Jersey. The Act, which became effective in December, 1995, has been characterized as remedial legislation intended to provide protection to residential mortgage debtors. Spencer Sav. Bank v. Shaw, 401 N.J. Super. 1 (App.Div. 2008). Thus, the FFA requires that the lender serve the borrower with a Notice of Intention to Foreclose before filing suit. The borrower is also given a right to cure the default and reinstate the mortgage prior to entry of judgment. Perhaps unsurprisingly, the FFA has spawned a great deal of litigation, as borrowers have sought to interpose defenses based on their lenders’ alleged non-compliance with the statute. See, e.g., US Bank, N.A. v. Guillaume, 209 N.J.449 (2012).
Recently, the New Jersey Supreme Court and the Administrative Office of the Courts [AOC] have reacted to the vast increase in the number of foreclosures by expressing concerns about the practices of some lenders (and their attorneys) in prosecuting foreclosure suits. The AOC has noted with dismay that 96% of residential foreclosure proceedings in New Jersey are uncontested. Rather than take this figure as an indication that mortgagors have no meritorious defense in most instances, the judiciary has determined that additional safeguards are needed.
Accordingly, amendments to the court rules have been adopted which require foreclosure counsel to file additional affidavits and certifications with the Office of Foreclosure confirming their adherence to procedures set forth in the rules. See Emergent Amendments to Rules 1:5-6, 4:64-1 and 4:64-2 (Dec. 20, 2010). Since the Office of Foreclosure will not recommend entry of judgment in the absence of proof of compliance with the court rules, the result is that the process of obtaining a judgment of foreclosure has become more complex and time-consuming. See Title Talk Nos. 76 (Fall, 2010) and 78 (Spring, 2011).
In Sturdy Sav. Bank v. Roberts, 427 N.J. Super. 27 (Ch. Div. 2012), the mortgagee filed a foreclosure suit under the FFA against mortgagors who had vacated the mortgaged property, apparently with no intention of returning.
The lender was unable to contact the borrowers and it filed a motion seeking, in effect, a declaratory order that it was not required to comply with either the FFA or the amended court rules (discussed above). Granting the requested relief would permit plaintiff lender to proceed with an application for entry of final judgment through the Office of Foreclosure without demonstrating compliance with the relevant provisions of the statute or court rules. The Chancery Division granted the first part of the motion (pertaining to the statute) but denied the second (relating to the court rules).
The court observed that the FFA’s definition of “residential mortgage”, N.J.S.A. 2A:50-55, refers to cases where the mortgagor occupies (or intends to occupy) the property at the time the mortgage is made. However, it does not specifically address the borrowers’ subsequent vacation of the property. It reasoned that the Legislature’s intent in enacting the FFA was to afford additional protections to residential borrowers so as to make it less likely that their homes would be lost. However, voluntary abandonment makes such protection unnecessary. Thus, the court concluded that the FFA was inapplicable under the circumstances.
On the other hand, the amendments to the court rules cover “all residential foreclosure actions”. It is unclear if the Supreme Court intended to limit the application of the rules to only those cases to which the FFA also applies. Furthermore, the concerns which led to the court rule amendments were not identical to those which caused the Legislature to enact the FFA. Thus, the court, while acknowledging that “this is a difficult issue” concluded that the lender was required to comply with the provisions of the amended court rules, despite the borrowers’ abandonment of the realty.


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