Published September 19, 2018
By Colleen O'Dea

Similar measures failed repeatedly under Gov. Christie, but proponents optimistic his successor will look favorably on plan to remake thousands of bank-owned homes

New Jersey would buy up foreclosed homes and turn them into affordable housing to address two long-standing problems in the state, under legislation that has begun moving through the Legislature.

With the number of bank-owned homes in the state reaching an 11-year high of 23,322 last year, Democratic lawmakers are again pushing to put in place a program to repurpose foreclosed housing. They have made various attempts to enact a similar effort, only to have former Gov. Chris Christie veto it multiple times. This year, with a Democratic governor who campaigned in support of affordable housing, the measure has a much better chance of enactment.

The Senate Economic Growth Committee on Monday voted 4-0 to release the “New Jersey Residential Foreclosure Transformation Act” (S-1584), which would create a temporary entity within the New Jersey Housing and Mortgage Finance Agency to use bonds and other funds to buy foreclosed houses from banks. The New Jersey Foreclosure Relief Corporation would then within 60 days sell or lease them to municipalities, developers or community development corporations for use as affordable housing, with the municipality in which the house is located getting the right of first refusal.

“New Jersey cannot afford to wait any longer to address the foreclosure crisis plaguing our state,” said Senator Nilsa Cruz-Perez (D-Camden/Gloucester), chair of the committee that released the bill. “We need swift and immediate action to get foreclosed properties out of the hands of banks and occupied by New Jersey residents who need housing. Abandoned, foreclosed properties hurt our communities and our local economies.”

The bill faced no opposition in committee, and representatives of both builders and community developers said the measure is a long time coming in a state that ranks first in the nation for foreclosures and is the sixth most expensive to rent an apartment.

A ‘stubborn problem’ for NJ
“I think this is now my 10th time testifying on this bill,” said Staci Berger, president and CEO of the Housing and Community Development Network of New Jersey, adding that Christie had vetoed it “at least three times.” Berger said that while other states have dealt with and moved on from the issue of foreclosures, it remains a “stubborn problem” in the state and needs a solution.

Jeff Kolakowski of the New Jersey Builders Association said the legislation was modeled after the Resolution Trust Corporation that was created to handle the assets of failed savings and loan associations declared insolvent during the S&L crisis of the 1980s. Builders, community developers, bankers and affordable-housing advocates began working on the effort at the beginning of the economic collapse in 2009. While it had moved through the Legislature three times, Christie vetoed it all three times. In a July 2012 veto message, Christie explained his rejection of this and several other bills as his “rejecting the attempt to simply add millions of dollars to the budget without identifying offsetting reductions.”

A fiscal analysis of a previous version of the bill stated that it would have an indeterminate state cost. The current bill foresees funding for the program coming from the state and municipal affordable-housing trust funds and from bonds issued by, and other money available to, the HMFA. Money would be kept in a new Foreclosure to Affordable Housing Transformation Fund. The measure is next slated for review by the Senate Budget and Appropriations Committee.

“This bill is good public policy,” Kolakowski said. “It’s about creating a clearinghouse to try to weed through and get rid of the backlog of foreclosures.”

Berger called the creation of a corporation to deal with foreclosed properties “a creative solution” that is necessary to address several problems.

‘…crisis of affordability’
“We have homes with no people in them and we have an enormous housing crisis of affordability,” she said. “We simply do not have enough homes people can afford. Taking places that don’t have people in them and turning them into places that can have people in them seems like not rocket science. It’s a no brainer.”

The foreclosure-relief corporation would have a seven-member board and would exist only until the end of 2022, by which time the sponsors hope the foreclosure backlog would be cleared.

Kolakowski blamed the state’s judicial foreclosure process for much of the backlog, saying it takes an average of 900 days to complete the process in the state. Beginning in 2011, the state judiciary began requiring lenders to prove they are following the law, which sets specific timeframes and includes a provision for mediation, in foreclosure cases. Last year, Chief Justice Stuart Rabner created a committee to study the state’s process and recommend potential changes. Sen. Steve Oroho (R-Sussex), a member of that committee, said it has completed its work and should issue its report soon.

Berger disputed the contention that the judicial foreclosure process is responsible for the large number of cases in the state, however, saying instead that the problem continues here “in large part because the previous state leadership did not do anything to address the foreclosure crisis and left it as a market problem and it is not a market problem, it needs policy and it needs funding.”

Republican’s suggestion rebuffed
Sen. Troy Singleton (D-Burlington), co-sponsor of the bill, said the combined foreclosure and affordable-housing problems have hurt individuals, municipalities and the state. He said he has been working for years on “the idea of trying to make sure we address the foreclosure and affordable housing pieces simultaneously because of the brakes, quite honestly, put on our state’s economic growth.”

He balked, however, at a suggestion by Sen. Joseph Pennacchio (R-Morris) that as part of the legislation the state “bring back those regional contribution agreements” that had allowed one municipality to give money to another to essentially take all or part of its affordable-housing obligation. Pennacchio said that allowing a municipality to spend its affordable-housing trust fund dollars to buy and transform foreclosed homes into affordable ones in another municipality would create “a huge windfall of dollars coming in” to needy communities.

“I cannot sit here and tell you how vociferously I disagree that bringing back RCAs will help fix this problem,” Singleton said. “It concentrates poverty in certain communities and it is against the spirit of what the Mount Laurel decision really was.”

Consequences of procrastination
The state Supreme Court has issued several rulings, beginning in 1975, that all communities have an obligation to provide their “fair share” of housing that those of modest means can afford. To address this, the Legislature passed the Fair Housing Act in 1985 that created a process for determining each community’s housing obligation and allowed for the regional contribution agreements. A 2008 revision of the act repealed the RCAs.

“I have seen the ramifications of what RCAs have done to communities,” Singleton continued. “I don’t think this idea that we want to see concentrations of poverty in certain areas because other communities can pay their way out of their affordable housing obligations is something any of us should embrace.”

The bill, as passed by the committee, would not allow for RCAs. It would, however, give any municipality that agrees to turn foreclosed housing into affordable housing additional credit toward fulfilling its housing obligation.

Cruz-Perez said she hopes the measure will move quickly to the desk of Gov. Phil Murphy, because “if we keep procrastinating on this issue it’s going to keep getting bigger and bigger and bigger.”