sembly, as Bill A4173. Senate Bill S2702 and Assembly Bill A4713 seek to remove from the current statute, N.J.S.A. 46:10B-51, the lender’s obligation to maintain the exterior of these distressed properties and, instead, require lenders to maintain both the exterior and interior of vacant or abandoned properties.
IMPACT ON LENDERS Lenders, particularly those in the distressed lending arena, should be aware of and educated about the expanded notice and maintenance requirements pending before the New Jersey Legislature. While distressed lenders may want to lobby the legislature to protect their interests, unfortunately litigation to challenge the statutes as an alternative is unlikely to prove helpful: there is a dearth of precedent concerning the interpretation of N.J.S.A. 46:10B-51 as currently enacted. For example, there appear to be no reported decisions concerning whether a lender may add the costs of abating nuisances or remedying code violations to its outstanding debt. Nor is it clear that these statutory obligations may be addressed by artfully drafted loan documents to shift the costs of these obligations. It is also unclear whether these lender obligations continue if a foreclosure proceeding is commenced but dismissed, as both the current and proposed statute are silent in this respect. Presumably, an argu-
ment can be made that since the plain language of the statute does not provide for the termination of these obligations until title has passed, lenders could remain liable even if they abandon their collateral or dismiss the foreclosure. What is clear, unfortunately, is that lenders faced with collateral diminishing in value (i.e. a vacant or abandoned piece of real property) will be forced to increase their financial exposure. Most notably, lenders will not only be faced with the increased costs of maintaining the interiors of vacant or abandoned residential and commercial buildings for routine maintenance, but also for latent defects such as animal infestations, mold and fire hazards. Even before lenders incur these potential remediation costs, they will incur expenses to monitor the interior and exterior of residential and non-residential vacant properties in foreclosure. It will behoove distressed lenders to preemptively expend funds to develop a system to address any potential violations – an unenvious task for a creditor already burdened with mitigating its damages. ■ Robert Nies is a member of the Chiesa Shahinian & Giantomasi Bankrupcy and Creditors’ Rights Group and has served the business community for more than 25 years. Steven Sheldon is counsel in the same group. He represents corporate clients, banks and commercial lenders.
Fall 2015 New Jersey Banker
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