With the real estate crisis, many New Jersey owners have lost much of the equity that they previously had in their properties. Depending on what figures you look at, since the peak of the market in 2006, the total loss of home equity is anywhere between $6.6 and $9 trillion.
This has left many individuals owing significantly more on their mortgage than their property is worth. With the downturn of the economy, which has left many individuals with no pay increases or underemployed, there are many people who have fallen behind on their mortgages and received foreclosure notices. The receipt of such a notice by a homeowner results in a desperation in which they are willing to do anything to save ownership of their home.
While there are many legitimate companies that offer services to save an individual's home, there are just as many unscrupulous individuals and companies, which offer, in exchange for a significant upfront fee, services that are too good to be true. These promises include saving the owner's property from foreclosure; postponing a foreclosure; changing the terms of the homeowner's mortgage through a modification of the loan; extending the time period for an owner to reinstate their mortgage; or signing over the deed to a third party who promises to rent back the residence and in the future sell it back to the original owner.
The distressed homeowner typically takes a double hit, as they are now out of several thousand dollars paid towards the company, which in many cases disappears or walks away from the situation having provided no tangible result, and the distressed homeowner has either lost their property or lost additional equity in their property and are left in a similar or worse position.
In response to this mounting problem, on Tuesday, December 20, 2011, New Jersey passed the Foreclosure Rescue Prevention Act. The legislation is designed to address three types of activities which are most often used by scammers, who take advantage of a distressed owner's situation.
- for-profit loan modification "services,"
- straight sales of properties in foreclosure by "foreclosure consultants," and
- sale leaseback foreclosure rescue scams.
The act specifically defines the "foreclosure consultants" which the Act addresses as (1) any person, located out-of-State or within the State, who, directly or indirectly, for compensation from an owner, makes any solicitation, representation, or offer to perform . . . any distressed property service that the person represents will . . . do any of the following in relation to the owner's distressed property:
(a) prevent or postpone the foreclosure sale or loss of the property due to nonpayment of taxes; (b) obtain any forbearance from any beneficiary or mortgagee or relief with respect to a tax sale of the property; (c) assist the owner in exercising any right of reinstatement or right of redemption; (d) obtain any extension of the period within which the owner may reinstate the owner's rights with respect to the property; (e) obtain any waiver of an acceleration clause contained in any promissory note, contract, or mortgage evidencing or securing a debt in relation to the property; (f) assist the owner in obtaining a loan or advance of funds to pay off the promissory note, contract, or mortgage evidencing or securing a debt in relation to the property; or (g) avoid or ameliorate the impairment of the owner's credit resulting from default on the promissory note, contract, or mortgage, or the conduct of a foreclosure sale or tax sale or offer to repair the owner's credit.
Under the law, any individual or company defined as a foreclosure consultants is prohibited from collecting any fees - and are limited from charging excessive rates - before completing the terms of the written contract and securing relief for the homeowner. Further, any foreclosure consultant company must post a bond with the state prior to conducting any business, and any individual foreclosure consultant must obtain a license from the State. Penalties for individuals in violation of the Act include a $10,000 fine for the first offense and $20,000 for each subsequent offense.
The bill excludes from the definition of foreclosure consultants those individuals who offer legitimate services to homeowners in trouble, including attorneys as well as any housing counseling agency contracted by the United States Department of Housing and Urban Development to provide such counseling.
The sponsors of the bill are hopeful that the Act will address the predatory practices that are associated with the foreclosure crisis in the State. Individuals who engage any services to address a foreclosure must make certain that they are not taken advantage of in their time of need.
The Foreclosure Rescue Prevention Act is positive legislation and everyone looking to address the foreclosure crisis in New Jersey should be in favor of the Act, as it should address a problem that we, as attorneys, have seen far too often, individuals who take advantage of individual homeowners when they are most vulnerable.
