The Save New Jersey Homes Act of 2008 is currently awaiting Governor Corzine's signature. It requires creditors to freeze the introductory rates of certain mortgages for 3 years & defer payment of the additional interest accruing at the fully-indexed rate, in addition to requiring specific disclosures prior to the rate reset & initiation of foreclosure proceedings. In this commentary, Stephen F.J. Ornstein, a partner with Thacher Proffitt & Wood LLP, and Matthew Yoon, David A. Tallman, and John. P. Holahan, associates with Thacher Proffitt & Wood LLP, examine the pending legislation in detail. They write:
The Act provides for certain disclosures to be provided to borrowers when rate resets are about to occur. Prior to the date on which the interest rate in effect during the introductory period of an introductory rate mortgage resets to a variable interest rate under the terms of the mortgage, a creditor must provide a series of written notices to an eligible borrower, separate and distinct from all other correspondence. The creditor must provide these notices at 60-day and 30-day intervals prior to the date that the introductory interest rate resets.
. . . .
Notwithstanding any law or contract right to the contrary, prior to the initial interest rate reset of an introductory rate mortgage, a creditor must provide an eligible borrower a period of extension for three years, during which the interest rate on the introductory rate mortgage will not increase above the original introductory rate, provided the eligible borrower completes and returns a certification of extension to the creditor in accordance with the Act. Under the provisions of the Act, the borrower continues to pay the introductory rate for three years, which includes both principal and interest payments (as well as taxes and insurance), and then at the expiration of the three year extension the borrower pays the principal and interest payments (as well as taxes and insurance) at the fully-indexed rate. Any deferred interest that results from the extension is due in balloon payment form at the time the loan is fully repaid.
. . . .
A creditor that issues to an eligible foreclosed borrower a notice of intention to foreclose on an introductory rate mortgage pursuant to the Foreclosure Act, must send to the eligible foreclosed borrower a series of written notices, by regular and registered mail, separate and distinct from all other correspondence. The notices must include in plain language and in at least 14 point bold type:
· A statement that the information in the notice is being provided as required by the Act, which was enacted by the New Jersey Legislature and which provides certain rights to borrowers whose homes are the subject of a mortgage foreclosure action;
· A list of alternatives to foreclosure that an eligible foreclosed borrower may pursue, including any refinancing of the loan offered by the creditor and any renegotiation of loan terms offered by the creditor;
· An explanation of the eligible foreclosed borrowers right to obtain a period of extension for three years pursuant to the Act, and an explanation of the procedure that an eligible foreclosed borrower must follow to obtain a period of extension;
· A statement that the notice should be read carefully and that the eligible foreclosed borrower may wish to consult with an attorney to understand the rights that may be available under the Act; and
· A certification of extension form that can be completed by an eligible foreclosed borrower in order to obtain the period of extension authorized pursuant to the Act
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