For the uninitiated landlord, New Jersey landlord-tenant court can be a bit of a shock. The deck seems insurmountably stacked in the tenant’s favor. And when a landlord acquires its property via foreclosure, the process is even more confusing. A recent trial court decision, UTS Bechman, LLC v. Woodard, is a good example of how confusing, and sometimes counter intuitive, landlord-tenant court can seem to a landlord.
In Bechman, tenant and her husband were involved in a contentious divorce. During and after the divorce, tenant leased the underlying property, which had been the marital home but was then in foreclosure, from her husband. The property was eventually sold at sheriff’s sale and plaintiff took title to the property. When it acquired the property, plaintiff posted a notice on the door identifying itself as the new owner and providing an address where rent should be paid.
Over the next four months, plaintiff never received rent from tenant, so it sued, seeking to evict her from the property. Seems simple enough, right? Nope.
As it turns out, tenant continued to send the rent to her husband even though she knew that plaintiff was the new owner of the property. This, plus plaintiff’s failure to follow the strict requirements of New Jersey’s Foreclosure Fairness Act, doomed plaintiff’s efforts to evict tenant.
First, the law. In most states, foreclosure extinguishes a tenant’s interest in property. Not New Jersey. Here, an owner who acquires property through foreclosure takes title subject to the tenant’s rights. This means that the owner can only evict the tenant for “good cause,” which is defined under the Anti-Eviction Act to include non-payment of rent. (This is the often the first surprise for unsuspecting owners who buy property at sheriff’s sales.)
Also, in response to the foreclosure crisis that followed the “Great Recession,” New Jersey passed the Foreclosure Fairness Act. It was designed, among other things, to protect tenants who live in property that was being foreclosed. The Act requires that owners who take title to property via foreclosure must provide specific notice to tenants. The statute provides “detailed and mandatory language, font size, paper size, and delivery requirements for the notice,” and requires that it be in both English and Spanish. As the court in Bechman observed: “The law provides the exact words that the new owner must use . . . The new owner must serve a notice that states the tenant does not have to move just because the property has been foreclosed upon.”
In Bechman, the notice plaintiff provided to defendant was not the notice required under the Foreclosure Fairness Act. It “merely notifie[d] the tenant where to pay the rent,” but did not “include any of the language required by the statute,” and “was not properly served in that it was not sent by regular and certified mail to the defendant.” The court acknowledged that “the landlord’s failure to comply does not operate as an absolute defense to a tenant’s obligation to pay rent.” But in Bechman, the tenant did pay rent, just to the wrong party, a scenario that, the court concluded, could have been avoided had plaintiff provided the proper notice:
The statute cannot be read to endorse eviction when the rent apparently was paid, albeit to the wrong person. This is particularly true when the plaintiff would have, or could have, avoided this misdirection by doing what the statute require[d].
So the court held that the combination of tenant paying rent, albeit to the wrong person, and plaintiff not following the strict letter of the Foreclosure Fairness Act, prevented plaintiff from evicting tenant.
The court reached this conclusion even though it admitted that it “strains credulity that defendant paid her former husband blithely and obliviously without regard to the outcome of the foreclosure litigation.” The court even recognized the merit in plaintiff’s position:
The landlord argues that the tenant, as a defendant in the foreclosure action, should have been aware that her husband lost the property and was no longer entitled to payment of rent. There is more than a little merit to this argument. The court finds it incredible that the defendant was on notice of the sheriff’s sale and the filing of the new deed but yet continued to pay rent to her husband.
And the court even acknowledged that the plaintiff’s argument “might prevail in some future action for damages.” Even so, the court held that plaintiff could not “overcome the sweeping language of and obvious purposes of the New Jersey Fair Foreclosure Act in this summary dispossess matter.”
This is what landlords find so puzzling. The court found the tenant’s position to be incredible, but still had no choice but to dismiss plaintiff’s complaint and deny its request to evict tenant. This happens frequently in New Jersey landlord-tenant court, and is often difficult to explain to landlord clients.
(Note: There are no doubt sound policy reasons behind New Jersey’s strong, pro-tenant laws. Stories of bad landlords are legion. But cases like Bechman do not further those policy reasons and seem to elevate form over substance, which is often difficult for landlords to understand.)