CONSTRUCTION & REAL ESTATE BLOG
The Legal Aspects of Real Estate Purchases Under the New Jersey Community Wealth Preservation Program (N.J.S.A. 2A:50-64 et seq. & N.J.S.A. 22A:4-8)
One of the most troubling aspects of the residential real estate market as it has evolved in recent years is the manner in which the foreclosure process has effectively shut out local communities without the means to purchase distressed properties. Many of these homes and vacant lots have been snatched up by private equity funds and banks that aggregate an enormous portfolio of acquisitions in neighborhoods to which they are not otherwise connected. This is a particular problem in New Jersey, given that it is one of the top states in the nation in terms of sheer volume of foreclosure matters.
The Community Wealth Preservation Program N.J.S.A. 2A:50-64 et seq. is a means of preserving generational wealth in communities that have traditionally suffered economic insecurity. The need has been compounded by the fact that New Jersey is one of the top three states in the country in terms of annual number of foreclosures.
The following are five frequently asked questions (FAQ) related to this new law.
FAQ #1 What is the “upset price” on a foreclosure?
A foreclosing plaintiff is typically a creditor whose loan to the property owner was not fully paid. Since that loan was secured by the property by virtue of a mortgage, the foreclosing plaintiff seeks to sell the property and use a portion of the proceeds to pay off the loan’s default balance. Accordingly, the foreclosing plaintiff will generally establish an “upset price.” The Act defines an upset price as the “minimum amount that a foreclosed-upon property shall be sold for in a sheriff’s sale as determined by the foreclosing plaintiff.” The upset price may not be increased more than three percent (3%) after it is posted online. That posting must be done at least four weeks before the foreclosure sale.
FAQ #2 What percentage of the upset price must be deposited in order for a party to be a successful bidder?
This is one of the main improvements to the foreclosure process for evening the playing field so that homeowners and those supporting them can compete for foreclosed properties with investor groups that have far more resources and enhanced access to obtaining loans. While the typical amount that must be deposited is twenty percent (20%), the Act changes that to 3.5%.
Having said that, the amount of the deposit that must ultimately be provided is still twenty percent. But only 3.5% needs to be put down initially, with the balance to reach twenty percent due within ninety business days. Presumably, this will allow local community residents or entities that do not have immediate access to a twenty percent downpayment to be given more time to raise that amount.
FAQ #3 Are there requirements to take advantage of the 3.5% initial downpayment?
There is an important requirement for having the right to utilize the procedure for providing the initially reduced downpayment: the individual must be willing to live in the residence for 84 months or longer. Additionally, they must be willing to participate in at least eight hours of homebuyer education through the United States Department of Housing and Urban Development (HUD).
FAQ #4 What happens if the ninety day period passes without the bidder providing the full twenty percent downpayment?
If the bidder does not augment the 3.5% initial downpayment to twenty percent within the required ninety day period, they not only cannot proceed to obtain full ownership of the property, but they also will forfeit the 3.5%, plus accrued interest, they did deposit. There are exceptions to this that generally relate to situations in which the failure to provide the full twenty percent was not the fault of the potential purchaser.
FAQ #5 What is the role of a nonprofit community development corporation in this process?
Obviously, there will be scenarios in which the foreclosed upon defendant is the property owner in a distressed community and does not have sufficient financing, nor other means of funding. In such event, the Act provides a second shot at preventing the property from being purchased by a person or entity that has no direct ties to the community.
Specifically, the Act provides that a nonprofit community development corporation (NCDC) has a “right of second refusal,” which allows it to step in so long as it has a contractual understanding with the person or entity that was foreclosed upon, their next of kin or tenant to provide the foreclosed defendant (and certain others related to that foreclosed defendant) with the right to remain in possession of the property. The NCDC has the same right to utilize the two-step process of providing a reduced downpayment of 3.5% initially followed up by the balance to reach twenty percent within ninety days.
The key point is that in the course of this process, the NCDC will have certain guardrails within which it must proceed. The aim is to preserve the distressed communities’ right to maintain property ownership; therefore, the NCDC must ultimately convey the property to an owner with a household income less than 120% of the median income. An alternative is to rent the property to a household that earns less than 100% of the median income.
FAQ #6 Are there ongoing restrictions that must be contained in the deed after the initial conveyance by the NCDC?
One of the more striking provisions of the Act requires the NCDC to “ensure that, in any future sale of the property…the property be subject to a renewable deed restriction, with the minimum number of affordability years being 30 years and with the option to renew, requiring any future property owner to sell the property to a household earning no more than 120% below area median income or rent the property as an affordable housing unit to a household who earns no more than 100% below area median income.”
Contact The Nissembaum Law Group With Questions
The Nissenbaum Law Group welcomes inquiries concerning legal matters relating to the New Jersey Community Wealth Preservation Program generally and the rights and responsibilities of nonprofit community development corporations in particular. Explore our Commercial Real Estate practice area and contact us with additional questions.
New Jersey Bulk Sales Law: Arguably the Most Important Law You’ve Never Heard of
The New Jersey Bulk Sales Law (Bulk Sale Statute) applies to transactions involving the sale, transfer or assignment in bulk of business assets of any part or whole of the person’s business assets, other than in the ordinary course of business. N.J.S.A. 54:50-38. The Bulk Sale Statute makes no exclusions for sales of real estate that is used for commercial purposes (although that definition is exceedingly broad). For example, when realty, even vacant land that is a business asset, is being conveyed other than in the ordinary course of business, in whole or in part, such transaction is subject to the bulk sale statute.
The law provides, in pertinent part, that the purchaser/transferee/assignee (hereinafter referred to as purchaser) must:
“at least 10 days before taking possession of the subject of the sale, transfer or assignment, or paying therefor, notify the director by registered mail, or other such method as the director may prescribe, of the proposed sale and of the price, terms and conditions thereof whether or not the seller, transferor or assignor (hereinafter referred to as seller) has represented to, or informed the purchaser, transferee or assignee that the seller, transferor or assignor owes any State tax and whether or not the purchaser, transferee, or assignee has knowledge that such taxes are owing, and whether any such taxes are in fact owing.”Id.
This notice should be provided on form C-9600. Along with the notice, the purchaser is also required to submit a signed copy of the contract of sale, transfer or assignment. If the notice is missing any information, the purchaser must provide the required information in accordance with the 10 day time period. If the purchaser takes possession of the subject of the sale, transfer or assignment in less than 10 day time period, the purchaser will be liable for any State tax liability of the seller. It is very important to note that filing of the notice by the seller does not protect the purchaser in any way and therefore, the purchaser will be held responsible for any State tax liability of the seller. In addition to this, the seller must prepare the Asset Transfer Tax Declaration (Form TTD) and give it to the purchaser. This form helps the director in estimating the gain on the transfer of asset(s) and the estimated tax on the gain.
Once the Division of Taxation receives the notice, [w]ithin 10 days of receiving such notice, the director shall notify the purchaser, transferee or assignee by such means as the director may prescribe that a possible claim for State taxes exists and include the amount of the State’s claim. Id. Then, the purchaser or purchaser’s escrow agent must hold the amount claimed in escrow. If the Division fails to notify the purchaser of escrow obligations in a timely manner, the bulk sale law provides that:
“the purchaser, transferee or assignee may transfer over to the seller, transferrer or assignor any sums of money, property or chooses in action, or other consideration to the extent of the amount of the State’s claim. The purchaser, transferee or assignee shall not be subject to the liabilities and remedies imposed under the provisions of the uniform commercial code, Title 12A of the Revised Statutes of New Jersey, and shall not be personally liable for the payment to the State of any such taxes theretofore or thereafter determined to be due to the State from the seller, transferrer or assignor.”
Id.
Once the Division is assured that all tax obligations of the seller have been met, it will issue a letter of clearance to the purchaser or its agent allowing the purchaser to release the balance of the escrow funds to the seller. Thus, upon receipt of the letter of clearance, the purchaser is relieved of any further liability.
An excellent resource on the Bulk Sales Law is the NJ Division of Taxation’s website’s FAQ page.
Commercial Real Estate Legal Counsel with Nissenbaum Law Group
The Nissenbaum Law Group is available to answer your questions regarding New Jersey Bulk Sales Law and other Commercial Real Estate inquiries. Contact us.
New Jersey Municipal Mechanics’ Lien Law
It is well established that a subcontractor may recover against a public agency even though there is no direct contractual relationship between the parties. Accordingly, where either a contractor or a subcontractor performs work with respect to public improvements and is due and owing money for supplies and services furnished, it is entitled to file a lien against the public agency or municipality to recover the amount owed. However, in order to do so, the contractor or subcontractor must first comply with certain procedures.
Specifically, under the New Jersey Municipal Mechanics’ Lien Law, N.J.S.A. 2A:44-125, et seq., in order to perfect a lien, a contractor or subcontractor must file written notice that it performed work or delivered materials to a subcontractor within 20 days of first performing such work or delivering such materials. N.J.S.A. 2A:44-128. This notice must be filed with the appropriate designated official for the public agency. Where a notice of delivery is not filed, the courts will not recognize a valid lien.
In addition, the New Jersey Municipal Mechanics’ Lien Law requires that a contractor or subcontractor file a notice of lien with a designated individual of the public agency either prior to the work being “completed or accepted by resolution of the public agency” or within sixty (60) days thereafter. N.J.S.A. 2A:44-132. The notice of lien must contain certain designated items in order to be valid.
Moreover, an action to enforce a lien must be brought within 60 days from the date on which the work to be performed by the contractor is “completed or accepted by resolution of the public agency.” Otherwise, the lien will not be considered binding on the municipality or public agency.
Comments/Questions: gdn@gdnlaw.com
© 2024 Nissenbaum Law Group, LLC
What is Spot Zoning?
What is spot zoning? That was one of the questions before the Appellate Division of the Superior Court of New Jersey in Hal Holding, LLC v. Mount Laurel Township, A-1340-10T2, 2012 WL 1556301 (N.J. Sup. Ct. App. Div. May 4, 2012.)
In that case, the parties were disputing whether an ordinance passed by Mount Laurel Township requiring a parcel of land to be maintained as a golf course was an invalid exercise of the Township’s authority. One of the issues in the case was whether that ordinance constituted “inverse spot zoning.” That is a principle of law that states that when a land use decision “arbitrarily singles out a particular parcel for different, less favorable treatment” than the less favorable ones it will be examined to see if the decision was arbitrary in nature. Id. at 11 (quoting Riya Finnegan, LLC. V. Twp. Council of S. Brunswick, 197 N.J. 184, 197 (2008))
In Hal Holding, the Court found that there had been no inverse spot zoning. Although the ordinance “was intended to affect, only one property: the subject property [the golf course], [in order to find that there was inverse spot zoning] the zoning must also constitute arbitrary treatment. Here, given that a purpose of the ordinance ‘was to promote the continuation of open space and natural features adjacent to fully developed residential areas,’ and the subject property consisted of open space (a golf course) adjacent to fully developed residential areas the disparate treatment here is not arbitrary.” Ibid.
Comments/Questions: gdn@gdnlaw.com
© 2024 Nissenbaum Law Group, LLC
Will the Economic Loss Doctrine Bar a NJ Negligence Claim if That Would Result in the Plaintiff Having No Remedy at All?
“Economic loss can take the form of either direct or consequential damages.” Spring Motors Distribs. v. Ford Motor Co., 98 N.J. 555, 566 (1985). “A direct economic loss includes the loss of the benefit of the bargain, i.e., the difference between the value of the product as represented and its value in its defective condition.” Ibid. (emphasis omitted). “Consequential economic loss includes such indirect losses as lost profits.” Ibid.As the Third Circuit has aptly noted, “[u]nder New Jersey law, the economic loss doctrine defines the boundary between the overlapping theories of tort law and contract law by barring the recovery of purely economic loss in tort.” Travelers Indem. Co. v. Dammann & Co., 594 F.3d 238, 244 (3d Cir. 2010) (internal quotation and formatting marks omitted). “The purpose of the rule is to strike an equitable balance between countervailing public policies that exist in tort and contracts law.” Ibid. (internal quotation and formatting marks omitted). Our Supreme Court has observed that “the purpose of a tort duty of care is to protect society’s interest in freedom from harm, i.e., the duty arises from policy considerations formed without reference to any agreement between the parties” whereas “[a] contractual duty, by comparison, arises from society’s interest in the performance of promises.” Spring Motors, 98 N.J. at 579.
Comments/Questions: gdn@gdnlaw.com
© 2024 Nissenbaum Law Group, LLC
What Constitutes Constructive Eviction For A Commercial Tenant?
When has a landlord materially deprived its commercial tenant of an expected and intended use of a premises, as required for constructive eviction? The Supreme Court of New York, Appellate Division for the First Department addressed this question. Pacific Coast Silks, LLC v. 247 Realty, LLC, 76 A.D.3d 167, 904 N.Y.S.2d 407 (N.Y. App. Div. 2010).
In that case, a commercial tenant could not use the premises because the elevator was not functioning for a seven week period. The court recognized that under certain circumstances, an elevator outage for that long could result in a constructive eviction.
The court set forth the elements necessary to establish constructive eviction as follows:
A tenant need not prove physical expulsion, but must prove wrongful acts by the landlord that substantially and materially deprive the tenant of the beneficial use and benefit of the premises. [citation omitted]
Id. at 172
In its holding in favor of the landlord and against the tenant, the court noted that no evidence was submitted concerning the deleterious effect it had on the tenant. The mere fact that the elevator was not functional was inadequate; there had to also be a showing that it impaired the tenant’s use of the building in a manner that was sufficient to establish a constructive eviction. In other words, that the tenant was unable to access the premises as it needed to during that seven week period. Id. at 173.
Comments/Questions: gdn@gdnlaw.com
2024 Nissenbaum Law Group, LLC
Looking for advice?
We're here to help.
Contact the Nissenbaum Law Group to schedule an appointment at 908-686-8000 or feel free to use the following form to e-mail us. Please include as much information as you can to ensure that we are able to handle your request as quickly as possible.
Looking for advice?
We're here to help.
Contact the Nissenbaum Law Group to schedule an appointment at 908-686-8000 or feel free to use the following form to e-mail us. Please include as much information as you can to ensure that we are able to handle your request as quickly as possible.
OFFICE LOCATIONS
MAIN OFFICE
2400 Morris Avenue
Union, NJ 07083
P: (908) 686-8000
F: (908) 686-8550
140 Broadway
46th Floor
New York, NY 10005
P: (212) 871-5711
F: (212) 871-5712
1650 Market Street
Suite 3600
Philadelphia, PA 19103
P: (215) 523-9350
F: (215) 523-9395
100 Crescent Court
7th Floor
Dallas, TX 75201
P: (214) 222-0020
F: (214) 222-0029