Foreclosure Laws In NJ: Residential vs Non-Residential Mortgages

The purpose for your mortgage can determine whether it can still be enforced years after its due date.  Foreclosure laws in NJ treat residential mortgages and non-residential mortgages differently. A residential mortgage can become unenforceable if the lender does not move to foreclose within six years of the maturity date of the mortgage.  To render a commercial mortgage unenforceable there must be more than twenty years of non-payment and inaction by the lender.The Fair Foreclosure Act was enacted in 1995 to protect residential mortgage debtors. N.J.S.A. 2A:50-53 et seq.    In 2009, the New Jersey Legislature amended the Fair Foreclosure Act to provide clarity and address problems caused by residential mortgages which have been paid or which are otherwise unenforceable.  See Statement to Senate Number 250, NJ Assembly Financial institutions and Insurance Committee October 6, 2008.  Such unenforceable mortgages “cloud the title” for a property, casting doubt on the title as a result of the encumbrance. This cloud can reduce the value and marketability of the property because any prospective buyer will perceive that they are buying property for which good title may not be conveyed.

The 2009 amendment to the Fair Foreclosure Act sought, in part, to codify an earlier New Jersey Appellate Division holding in Security National Partners v. Mahler, 336 N.J. Super. 101, 104(App. Div. 2000), that a 20 year limitations period limits a mortgagee’s (i.e., mortgage lender) right to commence a foreclosure action, running from the date of the debtor’s default.  Prior to the enactment of this amendment, New Jersey did not have a statute of limitations addressing mortgage foreclosure actions, and courts applied a 20 year limitations period based on the common law adverse possession period.  Anim Investment v. Shaloub, F-30508-15, (N.J. Super. Ch. Div. June 30, 2016) (Slip Op. at *4).  However the 2009 amendment only addressed residential mortgages.
The statute provides:  
“An action to foreclose a residential mortgage shall not be commenced following the earliest of:

a. Six years from the date fixed for the making of the last payment or the maturity date set forth in the mortgage or the note, bond, or other obligation secured by the mortgage;
b. Thirty-six years from the date of recording of the mortgage, or, if the mortgage is not recorded, 36 years from the date of execution, so long as the mortgage itself does not provide for a period of repayment in excess of 30 years; or

c. Twenty years from the date on which the debtor defaulted, which default has not been cured, as to any of the obligations or covenants contained in the mortgage or in the note, bond, or other obligation secured by the mortgage.”
N.J.S.A. 2A:50-56.1 (Emphasis added).

Therefore under this statute, for residential mortgages “there are three triggering events which commence the running of the statute of limitations period, after which a mortgage foreclosure action cannot be brought.” First is the maturity date for the mortgage.  Second is the date of recording of the mortgage. And third is the date that the debtor defaulted.  Each of those triggering events has a different applicable term for its statute of limitations to run.  The statute commands that the “earliest” date for expiration of a statute of limitations be applied.  

In a recent unpublished Chancery Division case, Judge Edward A. Jerejian (Bergen County) found that a residential mortgage with a maturity date of October 1, 1995 became unenforceable six years later on October 1, 2001. Anim, supra, slip op.  at *9.​​  1   The court found that the statute required the use of the earliest applicable statute of limitations date under N.J.S.A. 2A:50-56.1.  In addition, a 2011 unpublished Appellate Division case found that the statute of limitations elapsed in 2000 on a mortgage with a maturity date in 1994 because the six year statute of limitation under N.J.S.A. 2A:50-56.1(a) was applicable.  Garruto v. Cannici, 2011 N.J. Super. Unpub. LEXIS 1436, 2011 WL 2409912 at *1 (App. Div. June 6, 2011).

​The first question to ask when determining if a long unenforced mortgage is enforceable is whether at issue is a residential mortgage.  If yes, the mortgage is subject to the Fair Foreclosure Act.  The Fair Foreclosure Act (as well as its 2009 statute of limitations amendment) only applies to “residential mortgages”.  See  N.J.S.A. 2A:50-62.  “Residential mortgage” is defined as:

“mortgage, security interest or the like, in which the security is a residential property such as a house, real property or condominium, which is occupied, or is to be occupied, by the debtor, who is a natural person, or a member of the debtor’s immediate family, as that person’s residence. This act shall apply to all residential mortgages wherever made, which have as their security such a residence in the State of New Jersey, provided that the real property which is the subject of the mortgage shall not have more than four dwelling units, one of which shall be, or is planned to be, occupied by the debtor or a member of the debtor’s immediate family as the debtor’s or member’s residence at the time the loan is originated.”  ​N.J.S.A. 2A:5-55 (emphasis added).  

Therefore, two fundamental conditions must be met to have a residential mortgage: The mortgaged premises consists of not more than four dwelling units; and “the requisite occupation or intention to occupy exists by the debtor (or the debtor’s immediate family member) at the time the loan is originated.” 30 New Jersey Practice, Law of Mortgages, §24.9 at 254(Myron C. Weinstein)(2nd Ed. 2000).

If a mortgage does not qualify as “residential,” there are still judicially created limitations on foreclosing.  New Jersey courts have enforced a “twenty year limitation period to foreclose a mortgage” by “borrowing and applying the twenty year limitation period in certain adverse possession statutes.”  Security National Partners, 336 N.J.Super. at 106.   The Appellate Division in Security National clarified this issue by stating “a twenty year period of non-payment on a mortgage constitutes a running of the statute of limitations” Ibid.  In Security National, there is no distinction between residential mortgages and non-residential mortgages and thus the holding is applicable to all mortgages.  A later statute modified this judicially created limitation on foreclosing residential mortgages, but the twenty year limitation period adopted in Security National has not been modified and appears to still be applicable to non-residential mortgages.

Key Takeaways:

  • The statutes of limitations for enforcing residential and non-residential mortgages are different.
  • Residential mortgages may become unenforceable six years after their final maturity date.
  • Both residential and non-residential mortgages become unenforceable after 20 years of consistent non-payment, when the lender does not attempt to foreclose within that 20 years.

 1 Unpublished court opinions, such as this one, are not precedent and not binding on any court.  R. 1:36-3. However, an unpublished opinion may be persuasive secondary authority.  Ibid. In other words, unpublished opinions are instructive but not mandatory.