New Jersey Bill Aims to Create Foreclosure Buyback Program
Legislation Update
December 10, 2018
Source: New Jersey Legislature (S1584 information/full text)
Statement:
The Senate Budget and Appropriations Committee reports favorably Senate Bill No. 1584 (1R), with committee amendments.
As amended, this bill, the “New Jersey Residential Foreclosure Transformation Act,” establishes the “New Jersey Foreclosure Relief Corporation” as a temporary entity within the New Jersey Housing and Mortgage Finance Agency (HMFA) for the purpose of purchasing foreclosed residential properties and dedicating the properties for occupancy as affordable housing. The corporation will cease its operations on December 31, 2022. On that date, any assets, properties, or funds held by the corporation will transfer to the HMFA.
The bill provides for the corporation to be governed by a seven-member board, consisting of the Commissioner of Community Affairs, the Executive Director of the HMFA, the Commissioner of Banking and Insurance, and the State Treasurer and three New Jersey residents, appointed by the Governor, who have relevant backgrounds as described in the bill. The Senate President and the Speaker of the General Assembly will each nominate one member for appointment by the Governor.
The bill requires the corporation to make an annual report of its activities to the Governor and to the Legislature, setting forth a complete operating and financial statement. The corporation’s books and accounts must be audited at least once each year by certified public accountants.
The bill empowers the corporation to purchase eligible foreclosed residential property and mortgage assets to produce affordable housing and dedicate it for those purposes for 30 years. The bill defines “eligible property’ as any residential property that is either owned by a institutional lender as the result of a mortgage foreclosure judgment, or owned by a municipality as the result of a tax foreclosure judgment. The bill directs the corporation to enter into contracts or loans, or both, with no more than two experienced, financially sophisticated, community development financial institutions to enhance the ability of the corporation to fulfill its purpose of producing affordable housing.
The corporation or, if applicable, one of its contractors, will give the municipality in which the property is located, unless the municipality already owns the property as a result of a tax foreclosure judgment, a right of first refusal to purchase the property and dedicate it as affordable housing. The bill allows a municipality to exercise its right to purchase and dedicate eligible property for affordable housing, decline the option to purchase, or decline to exercise the option but, instead, authorize the corporation or its contractors to use monies from the municipality’s affordable housing trust fund to purchase the property.
If a municipality does not exercise its right of first refusal to purchase a property, the corporation may purchase the property and convey it for occupancy as affordable housing subject to a 30-year deed restriction to another public agency, a community development corporation, a developer, or a qualifying household.
If the corporation, its contractors or a municipality purchases an eligible property from monies deposited in a municipality’s affordable housing trust fund, the municipality will receive bonus credits toward any constitutionally-imposed obligation to provide affordable housing as follows: two units of credit for each eligible property sold or conveyed as a for-sale unit or leased as rental housing; two units of credit for each unit of affordable housing dedicated for permanent supportive housing, other than supportive shared living housing; and two units of credit for each new bedroom dedicated in supportive shared living housing. The bill provides that the number of additional units of credit that a municipality can receive under the bill, when combined with any other type of additional units of credit that may be available towards a municipality’s affordable housing obligation, cannot exceed 25 percent of the municipality’s total cumulative new construction affordable housing obligation. The bill specifies that a municipality cannot receive both additional units of credit for producing a unit of affordable housing under this bill, and additional units of credit for that unit under another provision of law.
The bill establishes a mechanism through which a “foreclosure-impacted municipality,” one that has 10 or more foreclosed homes listed on a multiple listing service for at least 60 days, can insulate its affordable housing trust funds from the laws that require the transfer of its trust fund monies to the “New Jersey Affordable Housing Trust Fund.” A foreclosure-impacted municipality can accomplish this by adopting a resolution committing the expenditure of its municipal affordable housing trust fund monies for the production of affordable housing and authorizing the transfer of at least $150,000 of its municipal affordable housing trust fund monies to the corporation for the corporation to use to produce affordable housing.
The bill requires the corporation to use funds transferred from a foreclosure-impacted municipality to produce affordable housing within that municipality. If the corporation is unable to use all of the transferred funds within two years of the date of transfer, the corporation will return the remaining funds to the municipality and the municipality will have at least six months from the date the funds are returned to commit the funds in accordance with other provisions of law. During this period, all municipal trust fund monies designated for the purchase of foreclosed properties will be protected from transfer to the State. A municipality will receive bonus credits, as otherwise provided by the bill, for affordable housing produced by the corporation or by one of its contractors pursuant to this mechanism.
The bill allows the corporation to establish criteria to identify the circumstances when the purchase, sale, lease, or conveyance of market-rate units furthers the purposes of the corporation. The corporation, or its contractors, will be able to purchase, sell, lease, or convey market-rate units in accordance with those criteria without imposing affordability controls upon the property provided the transaction does not violate any other law or requirement.
The bill establishes the “Foreclosure to Affordable Housing Transformation Fund,” to serve as the repository for funds appropriated or made available for the corporation. The HMFA will administer the fund, and is authorized to transfer into the fund any amounts it has that may be used for the production of affordable housing. The bill authorizes HMFA to issue bonds to fund the activities of the corporation. The bill calls for prioritization of the allocation of tax-exempt private activity bonds to allow the corporation to fulfill the bill’s purposes.
The bill provides that in any year in which the proceeds from the additional fee segment of the realty transfer fee exceed $75 million, the first $10 million above the $75 million collected will be transferred into the “Foreclosure to Affordable Housing Transformation Fund” for purposes of producing affordable housing. The bill authorizes the Commissioner of Community Affairs to transfer into the fund certain amounts held for the production of affordable housing, including but not limited to monies deposited in the “New Jersey Affordable Housing Trust Fund.”
The bill requires amounts deposited in the “Foreclosure to Affordable Housing Transformation Fund” that are derived from federal funding sources or are otherwise dedicated to the production of affordable housing be used for the production of affordable housing. The bill allows the corporation to use other funds for the production of affordable housing or market-rate housing, and allows the corporation to use annually up to three percent of fund monies for administrative costs.
COMMITTEE AMENDMENTS:
The committee amended the bill to expand the definition of “eligible property.” As amended, the bill defines “eligible property” as any residential property that is either owned by an institutional lender as the result of a mortgage foreclosure judgment, or owned by a municipality as the result of a tax foreclosure judgment. Previously, the bill defined “eligible property” solely as residential property owned by an institutional lender as the result of a mortgage foreclosure. The amendments also clarify various provisions of the bill to account for this expanded definition of “eligible property.”
The amendments provide that, if the corporation, its contractors or a municipality purchases an eligible property from monies deposited in a municipality’s affordable housing trust fund pursuant to the bill, the municipality will receive two units of credit, instead of one and one-quarter, toward its affordable housing obligation for each new bedroom dedicated in supportive shared living housing. Finally, the amendments clarify that the total number of additional units of credit that a municipality can receive under the bill, when combined with any other type of additional units of credit that may be available towards its affordable housing obligation, cannot exceed 25 percent of the municipality’s total cumulative new construction affordable housing obligation.
FISCAL IMPACT:
The Office of Legislative Services (OLS) estimates that the enactment of the bill would have an indeterminate impact on State and municipal finances associated with the operations of the “New Jersey Foreclosure Relief Corporation” (“corporation”), the transfer of monies thereto, and the purchase and dedication of properties for affordable housing purposes.
Most notably, the New Jersey Housing and Mortgage Finance Agency (“HMFA”) may experience a temporary increase in expenditures associated with the operation of the corporation. These expenditures, which would be supported by the proceeds of bonds issued by the HMFA, also may be offset by monies appropriated by the State, transferred from municipal affordable housing trust funds, or made available from other sources.
Specifically, the bill requires the corporation and the HMFA to enter into a mutually binding funding agreement that would determine the amount of bond proceeds to be raised by the HMFA to support the activities of the corporation. Due to the discretionary nature of this provision, the OLS is unable to predict the amount of debt that would be issued as a result of the bill. The OLS notes that depending on the maturity schedule of the bond issuance, the bill may result in a temporary increase in State expenditures that extends beyond the lifetime of the corporation, as the corporation would expire on December 31, 2022.
The enactment of the bill also may result in the redirection of certain State revenues, which would have been otherwise deposited in the New Jersey Affordable Housing Trust Fund, into the “Foreclosure to Affordable Housing Transformation Fund” and used to support the operations of the corporation.
Most notably, the bill provides that if the annual proceeds from the additional fee segment of the realty transfer fee exceed $75 million, the first $10 million collected above that amount would be used to support the corporation. Unless used to fund other housing-related purposes in the annual appropriations act, the proceeds of the additional fee segment of the realty transfer fee are currently deposited into the New Jersey Affordable Housing Trust Fund. However, given the volatility of realty transfer fee collections, the OLS is unable to determine the amount of realty transfer fee revenues that would be deposited into the “Foreclosure to Affordable Housing Transformation Fund.”
Additionally, the bill permits certain “foreclosure-impacted municipalities” to transfer not less than $150,000 from their municipal affordable housing trust funds to the “Foreclosure to Affordable Housing Transformation Fund,” and thereby protect uncommitted trust fund monies from being forfeited to the New Jersey Affordable Housing Trust Fund. A “foreclosure-impacted municipality” is defined as any municipality that has 10 or more foreclosed homes listed on a multiple listing service for at least 60 days. Under current law, if monies held in a municipal affordable housing trust fund remain uncommitted for longer than four years after the date of collection, the uncommitted balances would be forfeited to the State and deposited in the New Jersey Affordable Housing Trust Fund.
The enactment of the bill could also result in a limited increase in revenue for certain municipalities. Specifically, the bill authorizes the corporation or its contractor to purchase residential properties that are owned by a municipality as a result of a tax foreclosure judgment. The purchase of these municipally-owned properties by the corporation or its contractor would result in a one-time increase in municipal revenues.
The OLS also notes that the enactment of the bill could result in an increase in expenditures for certain municipalities that elect to (1) exercise the right to first refusal and thereby purchase and dedicate foreclosed properties for affordable housing purposes, or (2) finance the purchase of property by the corporation using municipal affordable housing trust fund monies, insofar as those transactions would not have otherwise occurred absent the enactment of the bill.
