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Recently the New Jersey Supreme Court addressed the following question: when a business violates the Consumer Fraud Act, can the employees of the business who participated in the offending transaction be held personally liable?

In Allen v. V & A Bros., Inc. the plaintiffs originally hired V & A Brothers, Inc. to build a retaining wall. The wall was improperly built and the construction company substituted an inferior backfill material for the material agreed upon in the construction plan. As a result, the retaining wall failed and substantial property damage ensued. Initially the plaintiff filed a lawsuit against the company, and the individual employees of the company who participated in the transaction. The trial court judge allowed the lawsuit to go ahead against the company, but dismissed the claims against the individuals who participated in the transaction.

On appeal, the Appellate Division reversed the trial court judge’s decision and reinstated the plaintiff’s claims against the individuals who participated in the transaction. Ultimately the New Jersey Supreme Court held that Consumer Fraud Act liability can be imposed on individuals who personally participated in the transaction which formed the basis for the Consumer Fraud Act claim.

Even today the vast majority of home mortgages will ultimately be owned or guaranteed by some federal agency. You know these agencies:Fannie Mae, Freddie Mac, the U.S. Department of Agriculture, the Veterans Administration, and the Federal Housing Administration. These different agencies have strict guidelines for what kinds of mortgages they will purchase or insure. Each agency has different guidelines.

Federal Housing Administration
The FHA backs almost 30% of the home mortgages in the United States. After a foreclosure, homeowners must wait three (3) years from the date of the foreclosure before they can qualify for a FHA loan. After a short sale, homeowners must wait three (3) years from the date of the short sale if the homeowner was not making their mortgage payments prior to the sale. However, if the homeowner was making their mortgage payments, there is no mandatory waiting period.

U.S. Department of Agriculture and Veterans Administration
The U.S. Dept. of Agricluture requires a three (3) year waiting period after a foreclosure.
The Veterans Administration only requires a two (2) year waiting period after a foreclosure.

Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac back nearly 50% of the home mortgages in the United States and they have the strictest requirements for new mortgages. In general, Fannie Mae and Freddie Mac require a seven (7) year waiting period after a foreclosure. There are some exceptions to this rule — if the homeowner can prove that the foreclosure was the result of an extraordinary circumstance outside the homeowner’s control that resulted in a sudden reduction in income or catastrophic increase in financial obligations (i.e.:job loss, divorce, huge medical bills), then the waiting period can be reduced to three (3) years.

Another way to reduce the waiting period with Fannie Mae and Freddie Mac is to have a significant down payment for the new property. Buyers who have a 20% down payment on the property can reduce the waiting period from seven (7) years down to two (2) years! For buyers able to make a 10% down payment, the waiting period will be reduced from seven (7) years to four (4) years.

The Supreme Court’s ruling means that foreclosure complaints based upon faulty notices do not need to be dismissed. Rather, the judge in the foreclosure proceeding can order that corrected notices be sent out. The most important point is that the cases do not need to be dismissed and restarted. There were thousands and thousands of New Jersey foreclosures effectively paused while the Supreme Court decided this case. Now that this case has been decided, we anticipate a massive increase in home foreclosure activity in New Jersey.

In August of 2011 this hold was lifted for Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Everybody was expecting the courts to be flooded with foreclosures again. But it didn’t happen. The mortgage servicers held off on filing the foreclosures. But why?

The answer is found in the case of US Bank National Association v. Guillaume. This case focuses on the New Jersey Fair Foreclosure Act’s requirement that every borrower receive a notice identifying the lender. Often the original lender make a number of mortgage loans and then bundled the mortgages together and sold them to other investors, or put the bundle of mortgages into a large mortgage-backed security. It is common industry practice for mortgages to be serviced by people who do not own the mortgages. In other words, Joe Investor may have purchased Harry Homebuyer’s mortgage as an investment, but Harry Homebuyer will make payments to and deal with Bank of America. In this situation, Bank of America is the mortgage servicer.

In this case US Bank sent out a foreclosure notice that identified the mortgage servicer as the lender. The notice did not identify the lender as the lender. The question for the NJ Supreme Court is whether this defect in the notice is meaningful enough to require the mortgage servicers to re-start all of the foreclosures where these (potentially) defective notices were sent.

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On June 8, 2011 South Jersey Bankruptcy Attorney John W. Hargrave, the principal attorney of John W. Hargrave & Associates, was awarded the 2010 – 2011 New Jersey State Bar Association Pro Bono award. The award was given in recognition of John’s commitment and dedication to providing free legal services to those who need help the most.