Changes coming to judicial foreclosure in New Jersey?? Is the process speeding up? Is “cash for keys” going to be a real solution? Welcome developments but uncertainty.

In the past we have reported that residential foreclosures in New Jersey were taking three years on average from start to sheriff’s sale. We have also reported that short sales and deed in lieu of foreclosures were laborious to obtain and results uncertain. Both patterns might be changing.

Recent reports have some sheriff sales coming after only 6 to 9 months. If this develops as a pattern there are several possible reasons for it. Our information is that 85% of foreclosures are filed through an electronic filing system called JEFIS. Those filings can be processed much more quickly by the clerk’s office. Initially, we are told, this system became quickly overloaded and broke down, but more recently is up and running.

Another reason may be because in late 2010 or early 2011, the Superior Court in Mercer County issued an order directing the Office of Foreclosure (located in that county) to cease processing foreclosure Complaints filed by any of six major major mortgage lender/processors and holding up Sheriff’s sales for those lenders. This arose from challenges to possible irregularities in their legal procedures. Other controversies have arisen concerning the required Notice of Intent to Foreclose, and the backup to establish that the foreclosure plaintiff really “owns” the loan being processed. With the pipeline “blocked” the backlog in the clerk’s office or at the local Sheriff’s office could be expected to clear.

However, large backlogs now and the future may mean a change to quicker foreclosures is going to be a long time in coming. According to are report in Bloomberg News, the Acting Commissioner of the NJ Community Affairs Department reports there are 50,000 to 100,000 existing judicial foreclosures in the system.  And we are told that something like 20,000 to 30,000 judicial foreclosure Complaints in New Jersey were ready to go but were held up by these legal challenges. However, in August 2011, the court issued a new order allowing processing of uncontested foreclosures by four of the six lenders to resume. (Bank of America/BAC Home Loan Servicing LP; JP Morgan Chase/Chase Home Finance LLC; Wells Fargo/Wells Fargo Bank NA/Wells FargoFinancial New Jersey, Inc.; and CitiBank, NA/CitiResidential Lending). Ally Financial (f/k/a GMAC) and One West Bank FSB (f/k/a Indymac) are still stayed.

So the volume of new foreclosures may resume. Whether this will engender the delays we saw recently is an open question. Whenever a judicial foreclosure is challenged by a borrower with meaningful and valid defenses, the process will be delayed. If a borrower files a Chapter 13 Bankruptcy to try to save the home, that will delay the process.

Any way you look at it, the foreclosure mess is bad for borrowers and lenders alike. What has been missing until now was a consistent and practical approach to a solution. But recent reports by the Bloomberg new service (February 7, 2012 “Banks Paying Homeowners to Avoid Foreclosures”) suggests that some large lenders are finally seeing their way to offering incentives for cash strapped borrowers to cooperate in an early short sale of their home. The article notes instances where borrowers have received thousands of dollars to facilitate a move out and move own to rental housing, along with offers to cancel any personal indebtedness. These offers appear to be prevalent in those states where judicial foreclosures result in long and costly delays before the foreclosed home can be sold. JPMorganChase, Wells Fargo, Citigroup and Bank of America are mentioned in the article.

There are good reasons to consider such offers seriously, but the devil is in the details. But “buyer beware” is still the watchword. Borrowers need to consider the tax consequences and the alternatives. All in all, a cooperative and bottom-line approach by lenders is long overdue and a welcome development. But the situation is fluid, and we have seen promising developments fail to materialize in the past. Time will tell.

For more about the judicial foreclosure process in New Jersey, deeds in lieu of foreclosure, and alternatives to foreclosure, visit our website at http://www.nv-njlaw.com.

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