USA - NEW JERSEY Law and Practice Contributed by: Steven Fleissig, David Freylikhman, Cory Mitchell Gray and David Jensen, Greenberg Traurig LLP
located to ensure that any new lienors cannot interfere with the foreclosure and will be bound by its outcome, even if not a party thereto. Real estate taxes, municipal water and sewer charg - es, and certain environmental liens will always have priority over a mortgage, regardless of when such charges are imposed. 3.7 Subordinating Existing Debt to Newly Created Debt A lender entitled to priority on its mortgage may agree to subordinate its priority to a subsequent mortgage lender’s mortgage through a subordi - nation or postponement agreement. New Jersey recognises the doctrine of equitable subordination. Under this doctrine, a mortgagee who negligently accepts a mortgage without knowledge of intervening encumbrances will subrogate to a first mortgage with priority over the intervening encumbrances to the extent that the proceeds of the new mortgage are used to satisfy the old mortgage. This provides the new lender with the same priority as the old lender. Please note that if the new lender has actual knowledge of the prior encumbrances, it is not Lenders in New Jersey may be exposed to envi - ronmental liability for hazardous substances affecting their collateral under federal and state laws. However, New Jersey has created “safe harbours” for lenders which, in general, should shield lenders if they act properly under the law. New Jersey law provides that if a lender does not participate in the management of a facility, it is not deemed an owner and, therefore, not the discharger of hazardous substances. A lender is not deemed to be involved in management if it entitled to the priority described. 3.8 Lenders’ Liability Under Environmental Laws
responds to an environmental issue and remedi - ates it or directs its borrower to do so, nor is it required to perform an environmental inspection prior to making a loan to avail itself of this safe harbour. In addition, taking title to the property after a foreclosure sale with the intention of sell - ing it in order to realise on the collateral falls within the safe harbour. 3.9 Effects of a Borrower Becoming Insolvent If the borrower becomes insolvent and is the debtor in a bankruptcy proceeding, any enforce - ment actions previously commenced will be subject to the automatic stay of the Bankruptcy Code. However, provided that the mortgage was properly recorded and there are no defects in the mortgage itself, the priority of the lender’s mortgage will remain intact. Throughout the pen - dency of the foreclosure action, the property will typically be operated by a receiver, if requested by the lender. Until the actual sheriff’s sale after a foreclosure proceeding, the borrower retains its equity of redemption and can regain control of the prop - erty by paying off the then balance of the mort - gage loan, together with all costs, attorneys’ fees, and interest as calculated in accordance with applicable law. If the borrower files a bank - ruptcy proceeding after a sheriff’s sale, title will nonetheless pass to the successful bidder. 3.10 Taxes on Loans New Jersey does not currently have any exist - ing, pending, or proposed rules, regulations, or requirements regarding recording taxes in con - nection with mortgage loans or mezzanine loans related to real estate.
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