S1528

An Act concerning real estate installment sales contracts and supplementing Title 46 of the Revised Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. This act shall be known and may be cited as the “Real Estate Installment Contract Act.”

2. As used in this act:

“Property” means any real property located in this State which has no more than four dwelling units, one of which shall be or is intended to be occupied by the purchaser or a member of the purchaser’s immediate family as a residence at the time that a real estate installment contract is originated.

“Purchaser” means any person acquiring an interest in property by means of a real estate installment contract.

“Real estate installment contract” or “contract” means an agreement which by its terms is not required to be fully performed by one or more of the parties to the agreement within one year of the date of the agreement and under which the seller agrees to convey title to a property to the purchaser and the purchaser agrees to pay the purchase price in installment payments while the seller retains title to the property as security for the purchaser’s obligation.

“Seller” means any person conveying an interest in property by means of a real estate installment contract.

3. a. A real estate installment contract shall be in writing and the seller shall provide a copy of the contract to the purchaser at or before the time the purchaser signs the contract. The contract shall contain at least the following:

(1) the names and mailing addresses of all the parties to the contract;

(2) the date on which the contract was signed by each party;

(3) a legal description, by metes and bounds or block and lot numbers, of the property conveyed;

(4) the purchase price of the property conveyed;

(5) any charges or fees for services that are included in the contract separate from the purchase price;

(6) the amount of the purchaser’s down payment;

(7) the principal balance owed, which shall be the contract price less the down payment;

(8) the amount and due date of each installment payment;

(9) a complete description of any mortgage or other lien encumbering or secured by the property, including the identity and address of the owner of record as to each mortgage or lien and the total amount due under the mortgage or lien;

(10) a requirement that, if the seller defaults on a mortgage on the property, the seller shall notify the purchaser and the purchaser may, at the purchaser’s option, make payments on that mortgage and receive credit from the seller for any amounts paid toward any payments required on the contract;

(11) a requirement that the seller shall deliver a deed and convey marketable title to the purchaser upon completion of the contract;

(12) a requirement that the seller shall be responsible for the payment of taxes, assessments, and other charges against the property from the date of the contract, unless otherwise agreed to by both parties; and

(13) a description of any pending order of any public agency against the property.

b. A seller shall not place or hold a mortgage on property sold pursuant to a real estate installment contract in an amount greater than the balance due under the real estate installment contract.

c. Within 20 days after a real estate installment contract has been signed by both the seller and purchaser, the seller shall record the contract, or a short form thereof, in the office of the county clerk in the county where the property is located.

4. Upon default by a seller of any provision of a real estate installment contract, which default continues beyond the expiration of any applicable notice provision and period to cure the default provided for in the contract, or upon the failure of a seller to comply with any provision of this act, the purchaser may bring an action for legal and equitable relief in Superior Court. Equitable relief in the action may include rescission of the contract and restitution to the purchaser in an amount equal to all amounts the purchaser paid to the seller plus the reasonable value of any improvements to the property made by the purchaser and any other proximately caused or incidental damages, less the fair rental value of the property for the period of time that the purchaser was in possession of the property.

5. a. If a purchaser fails to make a payment or otherwise defaults on a real estate installment contract, the seller may initiate the forfeiture of the interest of a purchaser under the contract by serving on the purchaser a written notice which:

(1) reasonably identifies the contract and describes the property covered by it;

(2) specifies the terms and conditions of the contract which have not been complied with; and

(3) notifies the purchaser that the purchaser’s interest in the contract will be forfeited unless the purchaser performs the terms and conditions of the contract within 30 days of the completed service of notice.

b. The seller shall serve the notice by hand delivery to the purchaser or by delivery by certified mail to the last known address of the purchaser. The seller shall not enforce the forfeiture of the interest of the purchaser under the contract pursuant to section 6 of this act until 30 days after the date of the completed service of the notice. A purchaser in default may avoid the forfeiture of the purchaser’s interest under the contract by making all payments currently due and any fees or charges for which the purchaser is liable or by otherwise performing the purchaser’s obligations under the contract within the 30-day period.

6. If a purchaser fails to make a payment or otherwise defaults on a real estate installment contract and if the purchaser is still in default after the expiration of the period prescribed by section 5 of this act, the seller, after complying with the notice requirement set forth in section 5 of this act, shall only enforce the forfeiture of a purchaser’s interest under the contract as follows:

a. If a purchaser has paid in accordance with the terms of a real estate installment contract for a period of less than five years from the date of the first payment and the purchaser has made payments of less than twenty percent of the purchase price of the property under the contract, the seller may bring an action in Superior Court for forfeiture of the purchaser’s interest in the contract and for recovery of possession of the property.

b. If a purchaser has paid in accordance with the terms of a real estate installment contract for a period of five years or more from the date of the first payment or has made payments in excess of twenty percent of the purchase price of the property under the contract:

(1) for purposes of the “Fair Foreclosure Act,” P.L.1995, c.244 (C.2A:50-53 et seq.), the contract shall be deemed to be a residential mortgage, the seller shall be deemed to be a lender, and the purchaser shall be deemed to be a debtor; and

(2) the seller may bring an action to enforce the forfeiture of the purchaser’s interest in the property and for recovery of possession of the property by use of the procedures for foreclosure and judicial sale of residential real property available to lenders pursuant to the provisions of the “Fair Foreclosure Act.”

7. This act shall take effect on the 60th day following enactment and shall apply to real estate installment contracts entered into on after that date.

STATEMENT

This bill, entitled the “Real Estate Installment Contract Act,” provides that, in connection with the use of a real estate installment contract to purchase residential real property, the contract must contain certain disclosures, the purchaser has legal and equitable remedies available upon a seller’s default on the contract, and a seller must adhere to certain procedures in enforcing the contract upon a purchaser’s default. As an alternative to the more traditional use of a mortgage to finance the purchase of real property, a real estate installment contract allows a purchaser of real estate to make installment payments to the seller towards the eventual purchase of the property, while the seller retains title to the property as security for the purchaser’s obligations until the completion of all contract terms.

The bill requires a real estate installment contract to be in writing and to disclose certain information, including: any charges or fees for services that are included in the contract separate from the purchase price, the principal balance owed, the amount and due date of each installment payment, and a complete description of any mortgage or other lien encumbering or secured by the property. In addition, the bill requires the seller to record either the contract or a short form of the contract, and puts certain restrictions on the seller’s ability to hold or place mortgages on the property.

The bill provides that if the seller defaults under any provision of a real estate installment contract and the default continues beyond the expiration of any applicable period allowed to cure the default, or if the seller fails to comply with any of the bill’s provisions, the purchaser may bring an action for legal and equitable relief in Superior Court. Equitable relief in the action may include rescission of the contract and restitution to the purchaser in an amount equal to all amounts the purchaser paid to the seller, plus the reasonable value of any improvements to the property made by the purchaser and any other proximately caused or incidental damages, less the fair rental value of the property for the period of time that the purchaser was in possession of the property.

The bill also establishes certain procedures to be followed in situations in which the purchaser defaults on a payment or otherwise defaults on the contract and the seller seeks to enforce the forfeiture of the purchaser’s interest in the contract. If a purchaser fails to make a payment on the contract or otherwise defaults on the contract, the seller may initiate the forfeiture of the interest of a purchaser under the contract by providing the purchaser with a written notice that the purchaser is in default. If the purchaser does not cure the default within 30 days of receiving the notice, the seller may enforce the forfeiture of the purchaser’s interest in the property only as follows:

(1) If a purchaser has paid in accordance with the terms of the contract for a period of less than five years from the date of the first payment and the purchaser has made payments of less than 20 percent of the purchase price of the property under the contract, the seller may bring an action in Superior Court for forfeiture of the purchaser’s interest in the contract and for recovery of possession of the property; or

(2) If a purchaser has paid in accordance with the terms of the contract for a period of five years or more from the date of the first payment or has made payments in excess of twenty percent of the purchase price of the property under the contract, the seller may bring an action to enforce the forfeiture of the purchaser’s interest in the property and for recovery of possession of the property by use of the procedures for foreclosure and judicial sale of real property available to lenders pursuant to the provisions of the “Fair Foreclosure Act,” P.L.1995, c.244 (C.2A:50-53 et seq.). This requirement to bring the forfeiture action as a judicial foreclosure action under the “Fair Foreclosure Act” ensures that in situations in which the purchaser has achieved a certain level of equitable interest in the property by making installment payments, the purchaser has certain rights of redemption to cure the default and also has the right to apply for any surplus funds if the amount realized from the foreclosure sale of the property is in excess of the amount necessary to repay the seller under the contract.