New Jersey’s legislature enacted the Fair Foreclosure Act in order to afford homeowners “every opportunity to pay their home mortgages, and thus keep their homes.” Amongst its safeguards, the Fair Foreclosure Act gives residential mortgagors statutory rights to cure defaults and requires mortgagees to notify mortgagors of their rights before filing a foreclosure action and another detailed notice before seeking entry of judgment.
In Aurora Loan Services, LLC v. Einhorn, the Appellate Division concluded that the protections and requirements of the Fair Foreclosure Act do not apply if the mortgagors do not reside at the mortgaged property at the time of default – even if they did at the time of origination of the loan. The Appellate Division interpreted the statutory definition of “residential mortgage” to have two requirements in order for the Fair Foreclosure Act to apply: (1) the mortgage must secure residential property that is occupied, or is to be occupied, at the time the Fair Foreclosure Act is to be applied; and (2) when the mortgage loan originated, the secured property must have consisted of four or fewer units, and one of those units must have been, or planned to have been, occupied by the debtor or a member of his or her immediate family.
Accordingly, the Appellate Division concluded that if the debtor or its family do not occupy, or plan to occupy, the property when the loan originated, the Fair Foreclosure Act does not apply – even if the debtor resides at the property at the time of default. Likewise, even if the debtor and/or its family occupied or planned to occupy the property when the loan originated, the Act will cease to apply if the debtor and its family vacate the property and convert it into a rental or investment property. Therefore, if a debtor resides in another location at the time of default and provides no evidence of its intent to return to the mortgaged premises, the Fair Foreclosure Act, and the obligations imposed thereby on a mortgagee do not apply.