The New Jersey State Assembly and Senate on Monday passed sweeping statewide legislation that will impact troubled borrowers looking for help with their mortgages, as well force changes to how servicers manage collateral within the state. The bill has been widely lauded by consumer advocates, while industry participants say the state’s law may make managing the servicing function on loans within the state more costly.
$35 million will go towards what state lawmakers called “mortgage stabilization and housing recovery” during negotiations — in particular, $25 million to fund loans up to $25,000 to troubled (and, ostensibly, underwater) homeowners looking to refinance their first mortgage. That’s the “mortgage stabilization” part. “Housing recovery” takes the form of $15 million to fund nonprofits that want to engage in lease-purchase agreements with troubled homeowners, giving troubled homeowners up to seven years to repurchase their homes.
But its a provision that forces up to a six-month stay on contested foreclosures, as well as a separate provision that places responsibility for managing vacant and abandoned properties, that servicers and lenders told HousingWire is likely to end up costing some potentially serious money.
New Jersey governor Jon Corzine first announced the foreclosure mediation plan on Oct. 20, although the program was not statewide and not mandated by law; at that time, as well, the amount of time allocated to the mediation process in contested foreclosures was not disclosed publicly to media. At the time this article was published, it was unknown just how much additional time the new mediation requirements may add to foreclosures in the state; legal sources within the state were not available for comment.
New vacant property ordinances put into place by the legislation will also look to place the onus for maintenance directly onto lenders, whenever a borrower abandons a property before or during the foreclosure process, a trend that has been gaining steam in various municipalities but has yet to formally become a statewide mandate in most of the U.S. By making lenders responsible for code violations, state legislators said they were trying to “prevent entire neighborhoods from falling overboard,” according to a story in BusinessWeek.
But such requirements tend to complicate matters for lenders and their agents considerably, as a forthcoming HousingWire Magazine special report covers in-depth (slated for the January/February issue). For one thing, title to the property remains in the name of the borrower until foreclosure is complete; for another, lenders say its often tough to tell just when a troubled borrower has truly abandoned a property.
“Winterizing a property while the homeowner is ultimately away at Grandmas can bring some serious consequences,” said one servicing manager, who asked not to be identified. The manager said missteps tied to mistaken vacancies already do take place in certain cities that look to fine lenders for code violations on properties in the default pipeline. “In New Jersey’s case, who’s on the hook during a six month mediation period, specifically?” the manager asked.
For his part, New Jersey governor Corzine applauded the legislation, and is expected to sign it into law this week or next. “The Legislature deserves high praise for its willingness to act swiftly on this package of bills, which will help move New Jersey out of the current economic recession and toward a path of recovery,” he said in a statement on Tuesday.
“I look forward to moving quickly and enacting these measures into law, putting more New Jerseyans back to work, assisting families in need, and helping small businesses during these trying economic times.”
To read the full details of New Jersey’s foreclosure aid act, click here.