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ALFN Advocacy Committee Update: A Portion of the NJ Community Wealth Preservation Act Declared Unconstitutional
- By: ALFN
- On: 08/29/2025 12:53:16
- In: Legal Update
On August 28, 2025, an Order and Opinion addressing the constitutionality of the New Jersey Community Wealth Preservation Act (the “Act”) was issued by the Honorable Patrick J. Bartels. In its Order, the Court confirmed N.J.S.A. § 2A:50-64(g) (“subsection (g)”) was unconstitutional as applied to property owners and junior lienholders, as it violates the Takings Clause of the Fifth Amendment of the United States Constitution, and the New Jersey Constitution.
Subsection (g) provided nonprofit community development corporations with a right of second refusal to purchase the property if they had a written agreement with the foreclosure defendant, next of kin of the foreclosure defendant, or the tenant of the foreclosed upon property. Subsection (g) also permitted non-profits the ability to exercise their right of second refusal to purchase the property for the final starting upset price on the day of the sheriff's sale.
The plaintiffs in the consolidated cases under review by the Court argued subsection (g) was invalid as applied because the Act permitted an unconstitutional taking of junior lienholders' property rights, preventing them from redeeming surplus funds following sheriff's sales. The State of New Jersey argued the Legislature provided adequate safeguards for parties to vacate sheriff's sales.
The Court agreed with the plaintiffs and explained that the application of the Act permitted non-profits to purchase properties at sheriff's sales by only paying the amount necessary to satisfy the first lien, meaning property owners were deprived of their right to surplus equity and junior lienholders could not recover surplus funds. The Court found that “[f]or all the Act's good intentions, there were some unintended consequences, specifically, the Act's effect on junior lienholders.”
The Court confirmed a property right to surplus funds exists, that property owners retain the equity of redemption, and junior lienholders are interested parties who retain the right of redemption and other legal remedies. On this basis, subsection (g) unconstitutionally took the owners' surplus equity by allowing non-profits to purchase properties at the upset price, which was often far lower than what other members of the public were willing to pay. This resulted in a hardship to property owners. Junior lienholders may have other remedies at their disposal, but also lost their right to redeem potential surplus funds. This amounted to an unconstitutional taking of surplus equity without just compensation. The Court found the State of New Jersey's arguments were insufficient to protect property owners' rights because the rules the State relied on are discretionary and reliance on such discretionary rules could present the same problem, resulting in a never-ending motion cycle.
While section 2A:50-64(g) was deemed unconstitutional, all other portions of N.J.S.A. § 2A:50-64 remain, subject to amendment. The Court's decision is not retroactive and only applies to the cases currently before the Court, and future cases. All pending regarding this matter have been remanded to their respective vicinages.
If you have any questions, please don't hesitate to contact Advocacy Chair Brian Goldberg at bgoldberg@grosspolowy.com, or any other member firms which practice in New Jersey.
Click here to review the court decision.
Update provided by Brian Goldberg, Esq., Gross Polowy (ALFN Advocacy Committee Chair)