The collapse of the U.S. housing market in 2006 and the severe recession that followed for three years was the most destructive economic period in more than a generation. The subsequent closing of casinos due to expanding regional competition then put the Atlantic City area into a depression from which it is only just emerging.
New Jersey made one important aspect of the economic calamity — home foreclosures — worse than in the rest of the nation. While many homeowners everywhere found they owed more on their houses than they were worth and abandoned them, or lost jobs and couldn’t pay for them, the rest of the nation more quickly processed foreclosed properties and restored values in their housing markets. But N.J. courts halted and then slowed foreclosure processing, in part in response to reports of improper documentation by lenders.
Five years after the collapse, the rest of the nation had reduced its foreclosures to pre-crisis levels. That has taken New Jersey more than a decade — a period in which not only has it led all others states in the rate of foreclosures, but Atlantic County has led all other U.S. metropolitan areas in foreclosures. While court actions protected hard-pressed borrowers, they also helped prolong the damage to the real estate market caused by abandoned and foreclosed properties.
At the end of last month, Gov. Phil Murphy appropriately came to Atlantic City to sign a package of nine bipartisan pieces of legislation to reform New Jersey’s foreclosure processing to do better next time. Among the several good reforms: • Mediation — which can resolve many foreclosures through loan modification, a short sale or other agreement — will be part of housing law and promoted. • Lenders are required to foreclose on properties deemed vacant and abandoned, and sheriffs are required to conduct their sale within 60 days of a court-determined foreclosure judgment. • Creditors foreclosing on a property must disclose the name and contact information of an in-state person responsible for maintaining the property.
The foreclosure bills followed a report last year from the New Jersey Judiciary’s Special Committee on Residential Foreclosures, which was charged “to review current practices, policies, court rules and legislation and suggest ways to ensure a timely foreclosure process while upholding due process rights.”
Half of U.S. states deal with foreclosures through an administrative process rather than a judicial one, and in those states housing markets adjust much more rapidly to the decline in property values. That takes a great weight off their economies and lets them grow and prosper again.
The New Jersey reforms will probably ensure that it doesn’t have America’s worst performance next time a recession is sparked by a housing crisis.
Whether the improvements are enough to ensure the state doesn’t needlessly prolong foreclosures and the next downturn, only experience will tell.