USA – NEW JERSEY Law and Practice Contributed by: David Freylikhman, Cory Mitchell Gray, David Jensen and Jody Saltzman, Greenberg Traurig LLP
Mortgages New Jersey is a lien theory state and, therefore, regardless of the language of the mortgage, title to real property does not vest in the mortgagee but remains with the borrower. The mortgage must be acknowledged and is recorded in the county wherein the property is located. Mezzanine Loans A mezzanine loan may be made to upstream entities secured by a pledge by the borrower’s principals of their ownership interests in the borrower. Investments The borrower may seek additional capital by accepting an investor from a “preferred equity” source – usually a privately held fund established for such purposes. 3.2 Typical Security Created by Commercial Investors The security provided to a mortgage lender typi - cally consists of a first-priority mortgage loan and an assignment of leases and rents. In certain circum - stances, a first-priority lender may allow secondary financing (ie, a second subordinate mortgage). Prior - ity of a mortgage is based on its recording date and, although it is not required, some lenders elect to file UCC-1 financing statements in the state where the borrower was formed to secure its lien on other non- real estate assets. A mezzanine lender’s lien is secured by a pledge of ownership interests in the property owner, and such security interest can be perfected both by the filing of a UCC-1 financing statement in the state where the pledging principal of the borrower resides and, if the lender requires the borrower to “opt-in” to Article 8 of the Uniform Commercial Code (UCC), by delivery of actual ownership certificates. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders See 2.6 Important Areas of Law for Investors . There are no specific New Jersey laws relative to this issue other than general corporate laws that require all entities that earn money from businesses located in New Jersey to be authorised to do business in New
Jersey. Earning money from a borrower located in New Jersey sufficiently constitutes doing business in New Jersey such that authorisation (to do business in the state) is required. If authorisation is required and not obtained, the lender may be barred from bringing claims before the courts in New Jersey until such time as all required state taxes have been paid. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security New Jersey does not currently have a mortgage tax. If a lender forecloses on its mortgage, accepts a deed in lieu of foreclosure and seeks to have the mortgage survive the conveyance, the RTF will be applied on the outstanding balance of the mortgage loan. In addition, the GPF will be imposed on the transaction (certain classified properties) if the outstanding balance of the mortgage exceeds USD1 million. If the lender elects to discharge its mortgage prior to or simultaneously with the deed in lieu of a transac - tion, no RTF or GPF will be imposed. 3.5 Legal Requirements Before an Entity Can Give Valid Security Generally, no New Jersey laws or requirements neces - sitate compliance by an entity providing security to a lender. Lenders and title insurance companies will review a borrower’s organisational documents to con - firm that all approvals and consents from the borrow - er’s owners and/or officers required thereunder have been obtained. 3.6 Formalities When a Borrower Is in Default With respect to commercial transactions only, debtor protections, if any, would appear in the loan docu - ments. These might include notice and an opportunity to cure a default before it becomes actionable by the lender. With respect to residential foreclosures, laws enacted during the 2008 recession require mortgage lenders to take many time-consuming steps before they can foreclose a mortgage loan. As a practical matter, New Jersey permits only judi - cial foreclosures, which are lengthy proceedings; even with respect to a non-contested commercial loan default, judicial foreclosure typically requires not less than nine months to one year to conclude. This
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