Murphy Vetoes NJ Foreclosure Reform Bill, But Leaves Door Open

NEW JERSEY — Gov. Phil Murphy conditionally vetoed a foreclosure reform bill that has been dubbed the “Community Wealth Preservation Program” on Thursday, despite ongoing demands and pleas from local housing advocates for him to greenlight it.

The bill, A793/S1427, would have reduced the amount of cash that people need to bring to the table in order to buy a foreclosed home and give them extra time to pay back the rest. Buyers would have to pay 3.5 percent down, with the rest of the money due in 90 days. Currently, buyers need to pay 20 percent down – with a cash or money order as the only payment options. They have 30 days to pay the remaining balance, with interest accruing on the 11th day.

Supporters of the proposed law including its sponsor - Assemblywoman Britnee Timberlake (District 34) – had argued that it would have enabled families, nonprofits and people who plan to live in the community to compete at sheriff’s foreclosure sales against “flippers” and corporations who only seek to profit by buying the home – not to actually live in it.

“The Community Wealth Preservation Program is a giant step toward closing the racial wealth gap and reducing the number of foreclosures in our state,” Timberlake said at a rally in support of the bill earlier this month.

• See related article: NJ Advocates Pressure Gov. Murphy To Sign Housing Foreclosure Bill

In a statement explaining his conditional veto, Murphy left the door open to another version of the bill, although Timberlake and other advocates have claimed it will water the legislation down and ultimately mean its defeat. Read the full statement here.

“I applaud the bill sponsors’ dedication to seeking creative solutions to keep homeowners in their homes and communities and to create more opportunities for affordable owner-occupied housing,” Murphy wrote.

“Recent news stories have drawn attention to the concerning rise in corporate ownership of single-family housing both in New Jersey and nationally,” Murphy said. “While a healthy amount of corporate investment is important for economic revitalization, left unchecked, corporate homebuying can disrupt the housing market by raising home prices and rents and restricting supply.”

• See related article: Newark Fights Back Against Corporate Home Buying Spree

The governor said he “wholeheartedly” supports the main goals of the bill, but added that he has “serious reservations” about the legality, practicality and unintended consequences that would come in its wake.

Murphy’s objections included:

UPSET PRICE – “First, allowing the foreclosed-upon defendant, the defendant’s next of kin, and nonprofit community development corporations to purchase the property at the opening bid amount in a foreclosure sale and then capping the plaintiff’s ‘upset price’ poses significant problems. Working in tandem, these provisions may operate to force lenders to take large losses on mortgages in default even when the market would enable them to recoup most or all of their investment. In addition to raising legitimate constitutional concerns, such a system could also harm borrowers by restricting access to credit and mortgages in New Jersey, as lenders would be forced to factor these potential losses into their lending decisions. For these reasons, I am recommending that the provision capping the upset price be removed from the bill. However, to provide a measure of predictability to potential bidders, I recommend adding a requirement providing that the upset price be set at least two weeks prior to the foreclosure sale, and that notice of that price be posted on the sheriff’s office website at that time.”

REAL ESTATE SALES – “In addition, my revisions remove the provision applying the bill’s procedures to sales of real estate-owned residential property. When a foreclosing plaintiff takes ownership of a property free and clear following a sheriff’s sale, it then rehabilitates and resells this ‘real estate-owned’ property. Applying procedures meant for sheriff’s sales to wholly private transactions is redundant and impractical, as the mechanisms created by the bill will have already been available to prospective buyers at the sheriff’s sale. Requiring private parties to repeat them would be time-consuming, costly, and difficult to enforce, while doing little to further the bill’s objectives. For similar reasons, I recommend clarifying that the procedures in the bill can be utilized only once when a property is in foreclosure, in order to limit unnecessary delays if subsequent bidders are unable to secure financing in the 90-business-day period.”

PARTICIPATION BARRIERS – “My recommended changes also reduce barriers to participation in the program. For example, the bill limits eligible nonprofit community development corporations to those that have been in existence for three years prior to the bill’s enactment. To incentivize the creation of new nonprofits to achieve the bill’s goals, I suggest instead limiting eligibility to those nonprofits that have been in existence for three years prior to the foreclosure sale at which the nonprofit intends to bid. I also recommend making additions to the list of exceptions that allow a successful bidder to vacate a property before 84 months have elapsed, so that prospective purchasers are not deterred from bidding. And I recommend amending the bill so that sheriff’s offices receive support from their respective county counsels, in addition to other local government entities, in enforcing that requirement.”

Some of Timberlake’s peers in the state Legislature had questioned some parts of the bill leading up to Thursday’s conditional veto, including Assemblywoman Beth Sawyer, a Republican who represents the 3rd District.

Sawyer, a real estate agent and broker who has blamed “rising property taxes and other related costs like insurance and utilities” for the current foreclosure spike in New Jersey, pointed to one provision that requires buyers to live in the home for seven years or face stiff fines when the bill came up for a vote in the Assembly, the New Jersey Monitor reported.

But advocates – including State Democratic Chairman Leroy Jones – have maintained that the bill is urgently needed to help combat a widening wealth gap in the state.

Carol Lynn Patterson, associate pastor of First Baptist Church of Lincoln Gardens in Somerset, said that home ownership is one of the main ways that working-class people can leave something to their next generation of family members.

“If we continue to allow the working-class home owners in our cities to lose their property to big banks, families will have nothing to build on in our communities,” Patterson said.

“Time and again, the government has rescued the rich,” Patterson continued. “We bailed out the auto industry in 2008 and 2018. We bailed out banks in 2009. We bailed out the airlines in 2021. Yet, whenever the government gives access or an economic advantage to the working-class, the wealthy cry foul.”

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