[First Reprint]

SENATE, No. 1574

STATE OF NEW JERSEY

INTRODUCED OCTOBER 3, 1996

By Senators INVERSO and CASEY

An Act concerning non-judicial foreclosures of commercial mortgages and supplementing Title 2A of the New Jersey Statutes.

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

    1. This act shall be known and may be cited as the "Commercial Mortgage Non-Judicial Foreclosure Act."

    2. a. The purpose of this act is to provide holders of commercial mortgages with a process for non-judicial foreclosure as an alternative to the judicial foreclosure process.

    b. Nothing herein shall be deemed to limit or prevent judicial foreclosure in accordance with the procedures provided by applicable rules and statutes, at any time prior to the completion of any sale pursuant to this act. The commencement of any action by a lender under this act may, at the sole discretion of the lender, be discontinued by the lender at any time prior to the completion of any sale pursuant to this act, whereupon the lender shall thereafter be entitled to pursue any rights the lender may have under this act or under any other statute or other law, including the right to pursue foreclosure through the judicial foreclosure process.

    c. The exercise by the lender of its rights under this act shall not in any way limit any rights pursuant to any other statute or other law, including the right to pursue foreclosure through the judicial foreclosure process. No provision of this act shall be construed to require a lender to exercise its rights under this act prior to instituting an action against a mortgagor or any other party, including any guarantor, in order to exercise any right the lender may have against a mortgagor or any other party or guarantor, including an action on a promissory note, loan agreement guaranty, indemnification agreement or obligation of a mortgagor or guarantor.

    3. As used in this act:

    "Commercial mortgage" means a mortgage, security interest or other instrument which secures a loan made other than primarily for personal, family or household purposes, in which the security is real property located in this State, and which property, as of the execution of the mortgage, is other than a one, two, three or four-family unit dwelling in which at least one unit shall be, or is planned to be, occupied as a residence by the debtor who is a natural person or by the spouse, parent, brother, sister or child of the debtor or debtor's spouse.

    "Debtor" means the person or entity shown on the record of the commercial mortgage lender as being obligated to pay the note, or other evidence of an obligation, secured by the commercial mortgage.

    ¹["Default"] "Monetary default"¹ means the failure to comply with any obligation in the commercial mortgage, note, bond, or other loan agreement, with respect to payment of money to the lender, payment of real estate taxes, payment of premiums for required insurance, payment of governmental assessments or tax or other liens against the mortgaged property ¹which would have priority over the commercial mortgage¹, payment of other specified amounts, or payment of funds into escrow for any of the items set forth ¹if such funds are not available for making agreed upon disbursements from the escrow account on a timely basis¹.

    "Lender" or "mortgagee" means any person or entity which makes or holds a commercial mortgage and any person or entity to which a commercial mortgage is assigned or otherwise transferred and shall include duly authorized agents.

    "Mortgagor" means the debtor and shall also include the owner of the property being sold subject to the power of sale permitted pursuant to this act.

    4. A commercial mortgage may contain a provision for a power of sale which authorizes the lender upon ¹monetary¹ default in the mortgage to foreclose the mortgage and sell the mortgaged property without instituting a foreclosure action through the judicial process. The power of sale shall be exercised in accordance with the provisions of this act.

    5. If a lender issues a commitment in a transaction to make a commercial mortgage loan, which loan is intended to contain a power of sale provision pursuant to this act, the lender shall indicate in the commitment that the mortgage will contain the power of sale provision.

    6. With respect to any commercial mortgage in which a power of sale is granted:

    a. The commercial mortgage shall state in bold and underlined language, substantially the following: "A power of sale has been granted in this commercial mortgage. A power of sale allows the mortgagee to take the mortgaged property and sell it, without instituting a judicial foreclosure action, upon ¹monetary¹ default by the mortgagor under this commercial mortgage."

    b. A mortgagor ¹or anyone who has guaranteed the mortgagor's debt¹ shall not be liable for any deficiency in the amount due and owing a mortgagee after a sale pursuant to this act ¹[unless the mortgagor specifically agrees to be liable for the deficiency by signature separate from the signature on the commercial mortgage, which agreement and separate signature may either be on a separate document recorded with the commercial mortgage or in the commercial mortgage document. Failure to obtain the separate agreement and signature shall not limit a mortgagee's rights against any party or person in any way except to prevent the mortgagee from pursuing a deficiency judgment against the mortgagor after sale pursuant to this act. The amount of any deficiency shall be the difference between the amount obtained by the mortgagee from the sale of the mortgaged property and the total amount due under the mortgage loan documentation including principal, interest, late charges, default interest, and the reasonable costs and expenses of the sale, including the amount of attorney's fees fixed in the commercial mortgage by agreement, unless a portion of all of the fees are waived by the parties or the amount fixed is found by a court to be unconscionable. If such fees are found to be unconscionable or no fees are fixed in the commercial mortgage by agreement, a court may allow reasonable attorney's fees. If, in an action for a deficiency, the mortgagor shall establish that the fair market value of the property as of the date of the sale exceeded the sale price, then the deficiency otherwise obtainable under this subsection shall be reduced by the amount of the excess. Any action for a deficiency pursuant to the provisions of this subsection shall be commenced within 90 days after the date of the sale]¹.

    7. Nothing in this act shall be construed to impair the right of any person who has a right to redeem the ¹mortgaged¹ property from redeeming ¹[prior to the execution and delivery of a deed pursuant to section 13 of this act] that property up to and including the day which is not later than 30 days after the date the mortgaged property is sold pursuant to section 12 of this act¹ , upon payment of the amount owed, including all expenses ¹, as these amounts are described in subsection c. of section 9 of this act¹ .

    8. a. If the commercial mortgage authorizes a mortgagee to exercise a power of sale, the mortgagee, after ¹monetary¹ default by a mortgagor and before exercising a power of sale, shall send the mortgagor a notice of ¹monetary¹ default.

    b. A notice of ¹monetary¹ default shall be sent by certified mail, return receipt requested, to the mortgagor at the mortgagor's address specified in the commercial mortgage as the place to which notices are to be sent, or if no address is specified for receipt of notices, to the address of the mortgagor as set forth in the mortgage and if changed, to the address specified in a written notice of a new address received by the mortgagee prior to the date of the notice of ¹monetary¹default. Notice pursuant to this subsection b. shall be considered to have been given to a mortgagor if it is sent by certified mail, return receipt requested, to the address as set forth herein or if served in the manner of service of the notice of sale as set forth in section 10 of this act.

    c. The notice shall state, in a manner reasonably calculated to make the mortgagor aware of the situation:

    (1) the particular commercial mortgage under which the mortgagee intends to exercise a power of sale;

    (2) the nature of the ¹monetary¹ default claimed;

    (3) that the mortgagee has accelerated the maturity of the debt, if that is the case;

    (4) any right the mortgagor has to cure the ¹monetary¹ default, including the amount to be paid or other action necessary to cure, and the time within which the cure shall take place in order to prevent the mortgagee's exercise of its right of sale;

    (5) that the mortgagor's ownership may be terminated by a sale of the property pursuant to this act;

    (6) if the commercial mortgage specifically permits transfer of the mortgaged property subject to the commercial mortgage, the transferee's right, if any, to succeed to the rights of the mortgagor in curing the ¹monetary¹ default;

    (7) that the mortgagor's right to possession will be terminated effective upon delivery by the mortgagee of the deed pursuant to section 13 of this act, and that upon such termination , the mortgagor may be evicted from the mortgaged property; ¹[and]¹

    (8) the right of the mortgagor to any surplus from the sale¹; and

    (9) the right of the mortgagor who claims not to be in monetary default or claims any other valid defense to the non-judicial foreclosure by power of sale to commence a summary proceeding, pursuant to section 15 of this act¹ .

    d. A mortgagor, or any one authorized to act on behalf of the mortgagor, shall have the right ¹to cure the monetary default, de-accelerate and reinstate the commercial mortgage by tendering the amount or performance specified in subsection e. of this section¹ at any time, up to the date and time of sale as set forth in the notice of sale pursuant to subsection b. of section 9 of this act, ¹[to cure the default, de-accelerate and reinstate the commercial mortgage by tendering the amount or performance specified in subsection e. of this section] or, if extended pursuant to paragraph (2) of subsection d. of section 9 of this act, up to the date and time to which the sale is extended which date shall also be subject to the notice of sale requirements of sections 9 and 10 of this act, or, if delayed pursuant to subsection b. of section 12 of this act, to the date and time to which the sale is postponed or continued, provided that the notices required under subsection b. of section 12 have been properly given¹. The payment or tender shall be made to the lender, holder or servicing agent. Provided, however, that if a mortgagee can establish in a court of competent jurisdiction that the mortgagor has a pattern of waiting until more than 30 days after receipt of notice of ¹monetary¹ default to cure the ¹monetary¹ default pursuant to subsection e. of this section, or can establish that the mortgagor is not using the right to cure in good faith, the court ¹[shall] may¹, if there is no other basis for delay of the sale, order the sale of the mortgaged premises no sooner than 30 days after a notice is published pursuant to subsection c. of section 10 of this act.

    e. To cure a ¹monetary¹ default under this section, a mortgagor shall:

    (1) pay or tender to the person whose name, address and phone number is given in the notice of ¹monetary¹ default, in the form of cash, cashier's check, or certified check, all sums due as set forth in the notice of ¹monetary¹ default and all other sums due which have accrued after the date of the notice of ¹monetary¹ default and up to the time of payment or tender, including the total amount due under the commercial mortgage loan documentation including past-due principal payments, interest, late charges, default interest, any other sum of money that is due under the commercial mortgage loan documentation, and the reasonable costs and expenses of collection of the foregoing, including the amount of attorney's fees fixed in the commercial mortgage by agreement, unless a portion of all of the attorneys's fees are waived by the parties or the amount fixed for attorney's fees is found by a court to be ¹[unconscionable] unreasonable¹. If the attorney's fees are found to be ¹[unconscionable] unreasonable¹ or no attorney's fees are fixed in the commercial mortgage by agreement, a court may allow reasonable attorney's fees; and

    (2) perform any other obligation which the mortgagor was bound to perform under the commercial mortgage.

    f. To cure a ¹monetary¹ default under this section, a mortgagor shall not be required to pay any charge, fee or penalty attributable solely to the exercise of the right to cure a ¹monetary¹ default as provided for in this act.

    g. Cure of ¹monetary¹ default reinstates the mortgagor, for the purposes of this act, to the same position as if the cured ¹monetary¹ default had not occurred. It nullifies, as of the date of cure, any acceleration of any obligation under the mortgage, note or bond arising from the ¹monetary¹ default which was cured.

    h. The right to cure a ¹monetary¹ default under this section is independent of any right of redemption or any other right or remedy under the common law, principles of equity, State or federal statute, or rule of court.

    ¹i. Within 10 days of mailing or serving of the notice of monetary default, the mortgagee may file with the recording officer in the county in which the mortgaged property is located, or if located in more than one county, in each county in which the mortgaged property is located, a notice of non-judicial foreclosure, which shall be in substantially the same form and have the same effect as a notice of lis pendens filed pursuant to N.J.S.2A:15-6 et seq.¹

    9. a. If, upon ¹monetary¹ default by a mortgagor, a mortgagee elects to use a power of sale granted in the commercial mortgage, it shall execute a notice of sale in written form directed to the mortgagor, any holder of a commercial mortgage or other lien of record, which is subordinate to the mortgagee's interest, and any other person having an interest, claim or lien of record in the mortgaged property whose interest, claim or lien the mortgagee seeks to foreclose by the exercise of its power of sale.

    b. ¹(1)¹ The notice of sale shall state the name of the mortgagor, the occurrence of a ¹monetary¹ default, the general description of the ¹monetary¹ default such as "failure to make a payment due," "failure to pay taxes," or other similar terms, the election to use the power of sale, the date, time and place when the mortgaged property will be sold, the legal description of the mortgaged property as it appears in the commercial mortgage and any street address of that property, which appears in the commercial mortgage, and as reasonably determined by the lender by title search or otherwise, any holder of a prior commercial mortgage or other lien of record, and any person having an interest, claim or lien of record in the mortgaged property whose interest, claim or lien the mortgagee seeks to foreclose by the exercise of its power of sale, and shall designate the person or persons whose unknown successors are being served. The notice shall state any terms and conditions applicable to the sale, including whether the mortgaged property may be sold in separate lots or parcels.

    ¹(2) With respect to any party having an interest, claim or lien which the mortgagee seeks to foreclose, the notice shall provide information which reasonably apprises the party of the nature of the party's interest. If the party is the State of New Jersey or the United States of America, the provisions of N.J.S.2A:45-1 et seq. and 26 U.S.C. §7425, respectively, shall govern the contents of the notice.¹

    c. The notice shall advise the mortgagor of the mortgagor's right, pursuant to this act, to redeem the mortgaged property from foreclosure by paying to the mortgagee ¹not later than 30 days after the date the mortgaged property is sold pursuant to section 12 of this act,¹ the total amount due under the commercial mortgage loan documentation including: principal; interest; late charges; default interest; prepayment fee, charge, penalty or similar payment; any other sum of money due under the commercial mortgage loan documents and the reasonable costs and expenses of a sale including the amount of attorney's fees fixed in the commercial mortgage by agreement, unless a portion of all of the attorney's fees are waived by the parties or the amount of the attorney's fees is found by a court to be ¹[unconscionable, prior to the execution and delivery of a deed pursuant to section 13 of this act] unreasonable¹ , and shall advise all other persons claiming an interest in that property that the property will be sold subject to their claims unless they elect to join the exercise of the power of sale or that the mortgagee claims an interest superior to the claims of such persons and that their interests shall be terminated by the sale unless they take appropriate legal action.

    d. (1) The date of sale specified in the notice of sale shall be at least 30 days from the date the notice is served, mailed or posted pursuant to section 10 of this act, as applicable, and also shall be at least ¹[120] 90¹ days after the date a notice of ¹monetary¹ default is mailed or served by the mortgagee to the mortgagor pursuant to subsection b. of section 8 of this act. ¹Failure of a person to receive timely notice of sale shall not adversely affect the title of the purchaser at the sale unless the person which did not receive timely notice of sale proves by a preponderence of the evidence that there was lack of substantial compliance with the requirements of this section and section 10 of this act and that the lack of substantial compliance was the proximate cause of that person's alleged injury and the lack of substantial compliance materially prejudiced that person's interest in the mortgaged property.¹

    (2) If the ¹monetary¹ default by the mortgagor is due to the loss of a tenant or tenants in the property subject to the commercial mortgage and less than 50% of the total rentable square footage in the mortgaged property is rented at the time of a ¹monetary¹ default, the mortgagor may request and shall be entitled to an extension of the date of sale for a period of up to ¹[60] 90¹ days. Any such request shall be made in writing and shall be sent certified mail, return receipt requested, to the mortgagee or its agent, at least 15 days prior to the first scheduled date of sale. A mortgagor shall be entitled to only one such extension ¹for a monetary default.

    (3) If a mortgagor cures a monetary default and at a later time is subject to another monetary default, the provisions of paragraph (2) of this subsection d. shall not apply if the monetary default is the result of the loss of the same tenant or tenants whose lose was responsible for an earlier monetary default¹.

    10. a. The notice of sale shall be personally served by the mortgagee's attorney or the attorney's agent or any other competent adult not having a direct interest in the mortgaged property being foreclosed. ¹In addition, the Sheriff of each county and the Sheriff's respective deputies are authorized, upon request of the mortgagee, to make service of the notice of sale, as provided herein. The Sheriff shall be entitled to the same fees for service as for the service of a summons and complaint in a Superior Court action.¹ Service shall be made as follows:

    (1) (a) Upon an individual other than a minor under 14 years of age or an incompetent person, by delivering a copy of the notice to the individual personally; or by leaving a copy thereof at the dwelling house or usual place of abode with a competent member of the household of the age of 14 years or over then residing therein; or by delivering a copy thereof to a person authorized by appointment or by law to receive service of process on the individual's behalf;

    (b) Upon a minor under 14 years of age, by delivering a copy of the notice personally to the minor's father, mother or guardian of the person or a competent adult member of the household with whom the minor resides;

    (c) Upon an incompetent person, by delivering a copy of the notice personally to the guardian of the person or a competent adult member of the household with whom the incompetent resides; or, if the incompetent is living in an institution, then to the director or chief executive officer of the institution;

    (2) Upon a domestic or foreign corporation, by serving, in the manner prescribed in subsection a. of this section, either an officer, director, trustee, or managing or general agent; or any person authorized by appointment or by law to receive service of process on behalf of the corporation; or the person at the registered office of the corporation in charge thereof. If service cannot be made upon any of the foregoing, then it may be made upon the person at the principal place of business of the corporation in this State in charge thereof, or if there is no place of business in this State, then upon any servant of the corporation within this State acting in the discharge of his duties. If it appears by affidavit of mortgagee's attorney or of any person having knowledge of the facts that after diligent inquiry and effort, personal service cannot be made upon any of the foregoing and if the corporation is a foreign corporation, then, consistent with due process of law, service may be made by mailing, by registered or certified mail, return receipt requested, a copy of the notice to a registered agent of service, or to its principal place of business, or to its registered office.

    (3) Upon an unincorporated association which is subject to suit under a recognized name and upon a partnership, a limited liability partnership or a limited liability company by serving, in the manner prescribed in subsection a. of this section, an officer, a managing or general agent, or, in the case of a partnership, a partner, or, if it appears that after diligent inquiry and effort, service cannot be made upon any of the foregoing, then, consistent with due process of law, by mailing, by registered or certified mail, return receipt requested, a copy of the notice of sale to a registered agent for service, or to its principal place of business, or to its registered office.

    (4) Upon the State of New Jersey, by registered, certified or ordinary mail or by delivering a copy of the notice personally to the Attorney General or to any person in his office designated by him in writing filed with the Clerk of the Superior Court.

    (5) Upon any county, municipality, or other public body, by delivering a copy of the notice personally to the presiding officer or to the clerk or secretary thereof.

    b. Notice of sale shall be mailed by the mortgagee, if by due diligence, personal service cannot be made on an individual pursuant to paragraph (1) of subsection a. of this section, within seven days of the publication required by subsection c. of this section, to the residence or place where the party to be served usually receives mail, unless it shall appear after due diligence that such residence or place cannot be ascertained after inquiry; and then the publication pursuant to subsection c. of this section shall be deemed sufficient.

    c. A notice of sale shall be published once in a newspaper which is published in the county in which the property is located, or, if there is none, in a newspaper published in this State circulating in that county. In any instance when personal service has not been able to be made on all parties pursuant to subsections a. and b. of this section, a copy of the notice of sale shall be posted upon the property to be sold within seven days after publication. The notice shall be published at least 30 days before the date appointed for selling the property.

    d. ¹[A notice of sale shall be recorded in the office of the county clerk or register of deeds of each county wherein the mortgaged property is situated within 30 days after compliance with the provisions of subsection c. of this section. The recording of the notice of sale pursuant to this subsection shall serve as notice of the pendency of the procedure to any person acquiring a subsequent interest in the property. To verify compliance with the notice provisions of section 9 of this act and subsections a., b. and c. of this section, proof of receipt, return of service or affidavit in lieu of personal service, or copies thereof and proof of publication of the notice of sale shall be recorded in the office of the county clerk or register of deeds of each county wherein the mortgaged property is situated any time before the recording of the mortgagee's deed executed pursuant to the sale under this act.] Within 10 days following the date of sale as provided pursuant to section 12 of this act, the mortgagee shall cause to be recorded with the recording officer in the county in which the mortgaged property is located, or if located in more than one county, in each county where the mortgaged property is located, a true copy of the notice of sale, together with true copies of proofs of service, however made, of the notice of monetary default and notice of sale, including but not limited to, proof of publication and proof of posting, if required, upon each party upon whom or which the notice of monetary default, notice of sale, or both, were served. Failure to comply with the provisions of this subsection shall not adversely affect the title of the purchaser at the sale or the validity of the non-judicial foreclosure proceedings.¹