LEGISLATIVE FISCAL ESTIMATE

[Fourth Reprint]

SENATE, No. 1566

STATE OF NEW JERSEY

215th LEGISLATURE

 

DATED: JUNE 19, 2012

 

 

SUMMARY

 

Synopsis:

Establishes the “New Jersey Residential Foreclosure Transformation Act”; provides expedited process for foreclosing abandoned residential properties.

Type of Impact:

Indeterminate fiscal impact on State and local governments.

Agencies Affected:

Departments of Community Affairs and the Treasury, New Jersey Housing and Mortgage Finance Agency, New Jersey Foreclosure Relief Corporation, the Judiciary, and municipalities.

 

 

Office of Legislative Services Estimate

Fiscal Impact

Year 1 

Year 2 

Year 3 

 

State Fiscal Impact

Indeterminate Fiscal Impact – See comments below

 

Local Fiscal Impact

Indeterminate Fiscal Impact – See comments below

 

 

 

 

·        The Office of Legislative Services (OLS) concludes that the enactment of Senate Bill No. 1566 (4R) will have an indeterminate fiscal impact on the State and certain local governments.

·        The bill may result in a shift of State revenues from the New Jersey Affordable Housing Trust Fund to the Foreclosure to Affordable Housing Transformation Fund held by the New Jersey Housing and Mortgage Finance Agency (NJHMFA), by providing that up to $10 million of additional realty transfer fee collections in excess of $75 million be deposited in the latter.

·        The NJHMFA may experience an increase in expenditures associated with the operations of the New Jersey Foreclosure Relief Corporation and the production of affordable housing. These additional expenditures may be offset by increased resources from State appropriations, transfers from municipal affordable housing trust funds, and other sources.

·        This legislation authorizes the NJHMFA to issue bonds to fund certain activities of the corporation and to contract with the corporation with respect to sources of repayment of, and security for, any such bonds.

·        The bill permits the transfer of municipal affordable housing trust fund monies to the corporation that would otherwise be spent by those municipalities for general affordable housing purposes or transferred to the New Jersey Affordable Housing Trust Fund for the purchase of foreclosed properties and mortgage assets that would be sold or leased as affordable housing.

·        The OLS notes that municipalities are not required to commit any current or future resources to support the purposes of the bill.  To the extent funds are transferred that would have been shifted to the State, the New Jersey Affordable Housing Trust Fund will lose revenue it would otherwise have received.

 

 

BILL DESCRIPTION

 

      Senate Bill No. 1566 (4R), the “New Jersey Residential Foreclosure Transformation Act,” establishes the New Jersey Foreclosure Relief Corporation as a temporary entity within the New Jersey Housing and Mortgage Finance Agency (NJHMFA).  The corporation will cease its operations on December 31, 2017 and any assets, properties, or funds held by the corporation will transfer to the NJHMFA.  The bill authorizes the corporation to enter into contracts with no more than two qualified community development financial institutions to purchase foreclosed residential property and mortgage assets from institutional lenders in order to produce affordable housing.  A municipality in which an eligible property is located would be given the right of first refusal to purchase the property and set it aside as affordable housing.  If a municipality chooses not to purchase the eligible property, the corporation may do so instead and, within 60 days, must convey it for occupancy as affordable housing, subject to a 30-year deed restriction, to another public housing agency, community development corporation, a developer, or a qualifying household.  If the corporation holds title to the property on the 61st day after the date of the deed, ownership would automatically revert back to the seller.  Whenever the municipality, corporation, or contractor uses monies in the municipal affordable housing trust fund to purchase a foreclosed property, the municipality will receive additional credits, up to 25 percent of the total, towards its affordable housing obligation.

      The bill permits the corporation or its contractors, when authorized by municipal resolution, to use moneys deposited in the municipality’s affordable housing trust fund to purchase an eligible property.  It also establishes the Foreclosure to Affordable Housing Transformation Fund as a nonlapsing revolving fund of the NJHMFA to serve as a repository for funds appropriated or otherwise made available for the corporation to fulfill its purposes.  A foreclosure-impacted municipality would be permitted to protect certain affordable housing trust fund balances from forfeiture to the State by committing a minimum of $150,000 of those monies to the foreclosure fund for the purchase of foreclosed properties from the corporation and the production of affordable housing within the municipality transferring the funds.  The bill also provides that when revenues generated by the additional fee segment of the realty transfer fee exceed $75 million, the first $10 million will be transferred into the fund.  The Commissioner of Community Affairs may transfer into the fund certain monies held for the production of affordable housing, including but not limited to amounts deposited in the New Jersey Affordable Housing Trust Fund and federal funds.  The corporation may use up to three percent of fund monies for administrative purposes.

      Finally, this bill authorizes lenders to bring summary actions to foreclose mortgages on vacant and abandoned residential property.  Real property would be deemed “vacant and abandoned” if the court finds that the mortgaged property is not occupied by a mortgagor or by a tenant who entered into a lease agreement before the mortgagee served notice of intention to commence a foreclosure under section 4 of the “Fair Foreclosure Act,” P.L.1995, c.244 (C.2A:50-56), and at least two specified conditions exist.  Residential property cannot be considered vacant and abandoned if, on the property: (1) there is an unoccupied building which is undergoing construction, renovation, or rehabilitation that is proceeding diligently to completion, and the building is in compliance with all applicable ordinances, codes, regulations, and statutes; (2) there is a building occupied on a seasonable basis, but otherwise secure; or (3) there is a building that is secure, but is the subject of a probate action, action to quiet title, or other ownership dispute.  If the court finds that the property is vacant and abandoned, the county sheriff is required to sell the property within 75 days of his receipt of any writ of execution by the court.  If the sheriff cannot comply with this timeframe, the foreclosing plaintiff may apply to the court for an order appointing a Special Master or judicial agent to hold the foreclosure sale.

 

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      None received.

 

OFFICE OF LEGISLATIVE SERVICES

 

      The OLS concludes that the enactment of Senate Bill No. 1566 (4R) would have an indeterminate impact on the State, NJHMFA, and local governments.  The State may collect an indeterminate amount of new revenues associated with the filing of court motions for summary actions to foreclose on vacant and abandoned property.  The NJHMFA may experience an increase in expenditures, offset in part by the transfer of municipal affordable housing trust fund proceeds, related to the operations of the New Jersey Foreclosure Relief Corporation and the production of affordable housing.  The enactment of this bill may result in redirection of monies that could be used for general affordable housing purposes towards the purchase of foreclosed properties that would be either sold or leased as affordable housing.

      This legislation also permits the NJHMFA to issue bonds, the proceeds of which would support the activities of the corporation.  The bill requires the corporation and the NJHMFA, within 120 days after the enactment of the bill, to enter into a mutually binding funding agreement that, in part, would determine the amount of bond proceeds to be raised by the NJHMFA for the activities of the corporation, as well as the sources of repayment and security for the principal and interest on the debt.  The OLS notes that the corporation is required to convey a property for occupancy as affordable housing within 60 days of purchase.  If this does not occur, ownership of the property automatically reverts back to the seller.  The bill is silent with regard to whether or not the seller is required to refund the amount paid for the property to the corporation.  Presumably, this would be subject to negotiation between the corporation and the seller at the time of purchase

      The OLS is unable to estimate the amount of realty transfer fee revenues that will be deposited into the Foreclosure to Affordable Housing Transformation Fund.  The realty transfer fee is sensitive to economic conditions and the slowdown in the real estate market caused by the national recession resulted in a decline in State collections of the additional fee segment of the realty transfer fee from $109.3 million in Fiscal Year 2006 to $40.8 million in Fiscal Year 2011.  According to information provided to the OLS by the Department of the Treasury,  the additional fee generated an average of $43.3 million in revenues in Fiscal Years 2009, 2010, and 2011.  As of March 2012, the additional fee has generated $30.3 million in revenues.  At this rate, the State will collect $40.5 million in additional fee revenues in Fiscal Year 2012.  Because the slow economic recovery and weakness in the real estate market will continue to affect revenues generated by the additional fee, it could be several years before collections once again exceed the $75 million threshold permitting transfers into the Foreclosure to Affordable Housing Transformation Fund.

      The OLS cannot determine the amount of municipal affordable housing trust fund monies that will be made available to support the purposes of the bill.  This legislation is permissive with regard to the use of municipal affordable housing trust fund resources for the purchase of eligible properties and affordable housing production.  Two hundred and ninety-five municipalities are currently authorized to maintain affordable housing trust funds.  According to information reported to municipalities by the Department of Community Affairs (DCA), through May 1, 2012, the Statewide balance of these trust funds is $257.3 million.  This information does not indicate the amount of funds that are already reserved for either existing affordable housing construction and rehabilitation projects and programs or affordability assistance.  Municipalities are also permitted to expend not more than 20 percent of the revenues collected from development fees for administrative purposes.

      Subsection d. of N.J.S.A.52:27D-329.2 requires all affordable housing development fees to be committed for expenditure within four years from the date of collection.  Subsection b. of N.J.S.A.52:27D-329.3 requires municipalities to commit to expend collections from payments-in-lieu of construction of affordable units at a residential development site within four years from the date of collection.  The DCA has clarified that N.J.S.A.52:27D-329.2(d) and 52:27D-329.3(b) require that all unspent affordable housing trust fund balances as of July 17, 2008 (the effective date of P.L.2008, c.46) must be committed for expenditure within four years from the date of collection.  The remaining balances may be subject to the forfeiture provisions of the aforementioned statutes if the municipality fails to commit to expend by July 17, 2012.  According to information reported to the DCA, Statewide municipal affordable housing trust fund balances as of July 17, 2008 totaled $257.9 million.  Of that amount, $99.1 million has been spent while $167.3 million must be committed for expenditure by July 17, 2012.

      However, the bill permits a “foreclosure-impacted municipality” to commit the expenditure of its municipal affordable housing trust fund monies for the purchase of foreclosed properties, from the corporation, through the adoption of a resolution pledging and transferring at least $150,000 of its municipal trust fund monies to the corporation for the production of affordable housing.  The data collected by the DCA indicate that 182 municipalities have at least $150,000 in affordable housing monies remaining to be spent as of May 1, 2012.  If all 182 municipalities are “foreclosure-impacted” and dedicate the required minimum of $150,000 to the corporation, provided that these balances are not already needed for another legally authorized purpose, $27.3 million will be made available to the corporation for affordable housing production.  If a foreclosure-impacted municipality accomplishes this dedication, its affordable housing trust fund balances will be exempted from the requirement to transfer certain balances to the New Jersey Affordable Housing Trust Fund.

      The Fiscal Year 2013 Proposed Budget anticipates the receipt of an amount not to exceed $200 million by the General Fund of monies currently held in municipal affordable housing trust funds.  Budget language allows the use of these funds to support a variety of affordable housing programs in the Departments of Community Affairs, Corrections, Health and Senior Services, Human Services, and Military and Veterans Affairs that provide services to households with individuals with low and moderate incomes.  If Senate Bill No. 1566 (4R) were to become law, and there is no change to the aforementioned provisions of law requiring the transfer of certain unexpended funds to the State, the number of municipalities with trust fund balances of at least $150,000 would decline from 182 to 127.  If all 127 municipalities are “foreclosure-impacted” and dedicate the required minimum of $150,000 to the corporation, provided that these balances are not already needed for another legally authorized purpose, $19.050 million will be made available to the corporation for affordable housing production.

 

Section:

Local Government

Analyst:

Scott A. Brodsky

Senior Fiscal Analyst

Approved:

David J. Rosen

Legislative Budget and Finance Officer

 

 

This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.

 

This fiscal estimate has been prepared pursuant to P.L. 1980, c.67 (C. 52:13B-6 et seq.).