If you default on your mortgage payments in New Jersey, the servicer (on behalf of the loan owner, called the "lender" in this article) will eventually begin a foreclosure. In New Jersey, the lender files a lawsuit in court to foreclose.
State law specifies how the judicial foreclosure process works, and both federal and state laws give you rights and protections throughout the process.
When you get a loan to buy residential real estate in New Jersey, you'll likely sign two documents: a promissory note and a mortgage. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The mortgage is the document that gives the lender a security interest in the property.
If you fail to make the payments, the mortgage provides the lender with the right to sell the home at a foreclosure sale to recoup the money it loaned you.
If you miss a payment, the servicer can usually charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you'll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. In most cases, federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called "loss mitigation" options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. (12 C.F.R. § 1024.39).
No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many New Jersey mortgages have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default.
If you don't cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. But in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Again, in New Jersey, foreclosures go through court. Here's how the process works.
Before starting the foreclosure, the lender must send you (the borrower) a notice of intention to foreclose that provides at least 30 days to cure the default (get caught up in payments). You'll get information about the option to participate in the foreclosure mediation program when you receive a notice of intention to foreclose.
The lender must mail you the notice a minimum of 30 days—but not more than 180—before foreclosure starts. (N.J. Stat. Ann. § 2A:50-56).
Along with the complaint and summons, you'll again get a notice about foreclosure mediation. (N.J. Stat. Ann. § 2A:50-76). A law passed in 2019, effective as of November 1, 2019, made New Jersey's foreclosure mediation program permanent. A court may order mediation if you file an answer to the foreclosure complaint. (N.J. Stat. Ann. § 2A:50-77).
If you don't respond to the foreclosure suit, the lender may apply for an entry of foreclosure judgment. The lender must mail you a notice 14 days before applying for the final judgment giving you one final chance to cure the default. If you respond to the notice within ten days, saying you intend to cure the default, the lender has to provide you with an additional 45 days to do that before it seeks an entry of final judgment. (N.J. Stat. Ann. § 2A:50-58).
If you oppose the foreclosure in an answer and raise valid defenses to the action, your case will be transferred to the superior court in the county where the property is located and assigned to a judge. Then, a trial date is scheduled. At the trial, the lender will try to prove to the court that it has the legal right to foreclose. You'll attempt to convince the court that the lender shouldn't be allowed to foreclose based on the reasons you set out in your answer.
If the court determines the foreclosure is proper, the lender must mail a notice of the sale to every party who has appeared in the action and the property owner at least ten days before the sale. The sheriff (the party that conducts the sale) posts a notice of sale at the property and in the sheriff's office. The notice is also published in two newspapers. (New Jersey Court Rule 4:65-2, N.J. Stat. Ann. § 2A:50-64).
At the sale, the lender usually makes a bid on the property using a "credit bid" rather than bidding cash. With a credit bid, the lender gets a credit up to the amount of the borrower's debt. Sometimes the lender bids the full amount of the debt; sometimes, it bids less. The highest bidder at the sale becomes the new owner of the property.
"Reinstating" is when the borrower brings the loan current by paying the missed payments of principal and interest, plus fees and costs. Completing a reinstatement will stop the foreclosure.
In New Jersey, you can cure a default (reinstate) at any time up until the entry of a final judgment. But there's an advantage to acting quickly: If you cure the default before the deadline given in the notice of intention to foreclose, and then down the line, you default again, you'll get a chance to cure the default again. If you cure the default after the deadline in the notice has expired, you'll stave off foreclosure, but if you fall behind again during the next 18 months, you don't get the right to cure the default in the second foreclosure proceeding. (N.J. Stat. Ann. § 2A:50-57).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In New Jersey, the defaulting borrower can redeem the home in the following circumstances.
The homeowner gets a 10-day period after the sale to file a motion objecting to the sale. (New Jersey Court Rule 4:65-5). After ten days, assuming no objection is filed, the court confirms the sale to finalize it. The New Jersey Supreme Court has determined that foreclosed homeowners get the right to redeem within the ten days after the sale and up until the court issues an order confirming the sale if objections are filed under the rule. (See Hardyston Nat. Bank v. Tartamella, 56 N.J. 508 (1970)).
Also, the foreclosed borrower gets a separate right to redeem if the lender gets a deficiency judgment. To redeem, you'll have to file an action for redemption within six months of the entry of a deficiency judgment. (N.J. Stat. Ann. § 2A:50-4).
But if you file an answer to the deficiency judgment lawsuit to dispute the amount of the deficiency (see below), you lose this right to redeem. (N.J. Stat. Ann. § 2A:50-5). (To get details on redemption rights in New Jersey, see Nolo's article If I lose my home to foreclosure in New Jersey, can I get it back?)
Sometimes, a foreclosure sale doesn't bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a "deficiency balance." Many states, including New Jersey, allow the lender to get a personal judgment, called a "deficiency judgment," for this amount against the borrower.
Under New Jersey law, the bank has to file a separate lawsuit within three months after the foreclosure sale or, if confirmation of the sale is required, from the date of the confirmation of the sale, to get a deficiency judgment. (N.J. Stat. Ann. §§ 2A:50-2, 2A:50-2.1).
You may contest the amount of deficiency owed by answering the deficiency suit and introducing evidence regarding the property's fair market value. The court will then determine the deficiency amount by subtracting the home's fair market value from the outstanding debt. (N.J. Stat. Ann. § 2A:50-3). But if you challenge the deficiency amount, you'll lose your right to redeem, as mentioned above. (N.J. Stat. Ann. § 2A:50-5).
If you don't vacate the home following the foreclosure sale, the new owner, which is typically the lender, applies for a writ of possession from the court. The sheriff then executes the writ.
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure, or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure.
Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.