New Jersey recently passed a law designed to prevent foreclosure consultants from taking advantage of distressed homeowners. Foreclosure rescue scammers often take title to victims' homes in a sale/leaseback arrangement or convince homeowners to give up ownership of their homes with an option to repurchase at a later date.
Read on to learn more about New Jersey’s Foreclosure Rescue Fraud Prevention Act and how it can help prevent foreclosure rescue scammers from preying on you if you are facing foreclosure.
(To learn more about the common ways fraudulent foreclosure consultants prey upon homeowners in foreclosure, see our Foreclosure Rescue Scams topic area.)
The New Jersey Foreclosure Rescue Fraud Prevention Act
On December 20, 2011, New Jersey Governor Chris Christie signed into law the Foreclosure Rescue Fraud Prevention Act (the Act) (N.J. Stat. Ann. § 46:10B-53 et seq.) The new law took effect on June 18, 2012, and protects homeowners with residential properties in foreclosure from rescue scams. The Act:
- requires licensing for foreclosure consultants
- provides owners of financially distressed residential properties with certain contract rights
- requires foreclosure consultants and distressed property purchasers to adhere to certain standards
- regulates the sale price of certain distressed homes, and
- imposes criminal and civil sanctions for violations of the Act.
What Is a Foreclosure Consultant?
The definition of a foreclosure consultant, which includes in- and out-of-state parties, includes anyone who offers to perform, or who performs, any distressed property service that will:
- prevent or postpone a foreclosure
- obtain a forbearance from the lender
- assist the owner in exercising any right of reinstatement or right of redemption (learn more about redemption periods)
- obtain any extension of the reinstatement period
- obtain a waiver of an acceleration clause contained in any promissory note or mortgage (when a loan is accelerated, you have to immediately pay the entire balance of the loan, not just the past due amounts)
- assist the owner in obtaining a loan or advance of funds to pay off the mortgage, or
- fix a borrower’s bad credit resulting from default or from a foreclosure sale.
Foreclosure Consultants Must Be Licensed
Under the Act, foreclosure consultants must acquire an official license from the New Jersey Department of Banking and Insurance (DOBI). To obtain a license, foreclosure consultants must:
- file an application
- pay the prescribed fee, and
- obtain a bond from a surety company.
Additionally, foreclosure consultants, including on any officer, director, partner, or owner of a controlling interest, or any employee of the foreclosure consultant, must consent to be fingerprinted and undergo a criminal history check. Licenses are valid for only two years.
Foreclosure Consulting Contract Requirements
Contracts for foreclosure consulting must be in writing and include certain non-waivable disclosures, including, for example:
- the nature of services to be performed
- the total amount and terms of compensation to be paid, and
- the distressed property relief that is to be obtained by the consultant.
The property owner may cancel the contract at any time before the foreclosure consultant has fully performed every service and obtained the relief set forth in the contract. (This means the homeowner can cancel the contract if the consultant’s efforts are unsuccessful.) Foreclosure consultants may not request or receive a fee prior to the completion of all services.
Limits on Foreclosure Consultant Fees
The foreclosure consultant’s fee may not exceed two monthly mortgage payments (principal and interest only) or the most recent quarterly property tax installment on the distressed property, whichever is less. Foreclosure consultants may not take a wage assignment, a lien of any type on real or personal property, or other security to secure payment. Perhaps more importantly, the foreclosure consultant is not allowed to acquire any interest in the distressed property from an owner with whom the foreclosure consultant has contracted.
Conveyances of Distressed Properties
When there is a distressed property conditional conveyance (where an owner transfers the distressed property to a purchaser, but the owner occupies the property and retains an option to purchase the property back from the purchaser) or a distressed property conveyance (where the owner transfers the distressed property to a purchaser), the Act provides certain rights for owners. The contract must:
- be in writing
- be notarized
- include certain notices and disclosures in 14-point boldface type
- be in the same language principally used by the owner to negotiate the sale of the distressed property, and
- contain a conspicuous explanation of the owner’s cancellation rights.
Also, a distressed property purchaser must pay the owner at least 82% of fair market value for distressed property conveyances and distressed property conditional conveyances.
Regarding distressed property conditional conveyances, the Act requires the purchaser to:
- verify that the owner has a reasonable ability to pay for a subsequent conveyance of title back to the owner, and
- prior to conveyance, provide a disclosure statement to the owner that includes all costs the owner will incur in connection with the conveyance and any option for the owner to purchase the property back from the purchaser.
Penalties for Violations of the Act
There are civil and criminal sanctions for violations of the Act.
Criminal liability. Violators are subject to a $10,000 fine for the first offense and $20,000 for the second and each subsequent offense. A person who violates any provision of the Act is guilty of a crime of the third degree. Any violation in connection with a pattern of foreclosure rescue fraud or conspiracy to engage in a pattern of foreclosure rescue fraud is a second-degree crime.
Civil actions. Under the Act, property owners can sue a foreclosure consultant or a distressed property purchaser in Superior Court for any violation of the Act for treble damages, attorney’s fees, costs of suit, and appropriate equitable relief.
(Learn more about the foreclosure process in New Jersey.)