N.J. Admin. Code § 3:30-8.2

Current through Register Vol. 56, No. 19, October 7, 2024

Section 3:30-8.2 - Purchaser and assignee liability under N.J.S.A. 46:10B-27

(a) Pursuant to N.J.S.A. 46:10B-27b, any person who purchases or is otherwise assigned a high-cost home loan shall be subject to all affirmative claims and any defenses with respect to the loan that the borrower may assert against the original creditor or broker of the loan; except that the liability thereunder shall not arise if the purchaser or assignee demonstrates, by a preponderance of the evidence, that a reasonable person exercising reasonable due diligence could not determine that the loan was a high-cost home loan.

1. In any administrative action commenced under 46:10B-22 et seq. or this chapter, it shall be presumed by the Department that a purchaser or assignee of a high cost home loan has exercised such due diligence if the purchaser or assignee demonstrates by a preponderance of the evidence that it:

i. Has in place, at the time of the purchase or assignment of the loan, policies that expressly prohibit its purchase or acceptance of assignment of any high-cost loan;

ii. Requires by contract that all sellers or assignors of home loans represent and warrant to the purchaser or assignee that either:

(1) It will not sell or assign any high-cost home loan to the purchaser or assignee; or

(2) That the seller or assignor is a beneficiary of a representation and warranty from a previous seller or assignor to that effect; and

iii. Exercises reasonable due diligence at the time of the purchase or assignment of home loans or within a reasonable period of time thereafter, which due diligence is intended by the purchaser or assignee to prevent it from purchasing or taking assignment of any high-cost loan.

(b) With respect to a claim brought under N.J.S.A. 46:10B-27c, notwithstanding any other law to the contrary, a borrower acting only in an individual capacity may, within six years of the closing of a high-cost home loan, assert against the creditor or any subsequent holder or assignee of the home loan a violation of 46:10B-22 et seq. in connection with the loan as an original action.

(c) With respect to a claim brought under N.J.S.A. 46:10B-27c, notwithstanding any other law to the contrary, a borrower acting only in an individual capacity may, at any time during the term of a high-cost home loan after an action to collect on the home loan or foreclose on the collateral securing the home loan has been initiated or the debt arising from the home loan has been accelerated or the home loan has become 60 days in default, assert against the creditor or any subsequent holder or assignee of the high-cost home loan any defense, claim or counterclaim.

(d) Pursuant to N.J.S.A. 46:10B-27c, the damages sought in any original action as referenced in (b) above, or in any claim or counterclaim as referenced in (c) above, shall be limited to amounts required to reduce or extinguish the borrower's liability under the home loan plus amounts required to recover costs, including reasonable attorney's fees not included in the principal amount of the loan.

(e) No person shall, in bad faith or otherwise in an attempt to avoid the application of 46:10B-22 et seq.:

1. Divide any loan transaction into separate parts; or

2. Undertake any other such subterfuge, with the intent of evading the provisions of 46:10B-22 et seq.

(f) The limitations on assignee liability with respect to high cost home loans as set forth in (a) above shall not apply to assignee liability asserted on any ground other than 46:10B-27.b.

(g) The limitations in this chapter shall apply to any assignee liability arising under 46:10B-27 regardless of whether an individual asserting assignee liability pursuant to this chapter chooses to pursue such an action under the Consumer Fraud Act, as authorized under N.J.S.A. 46:10B-29a, or under the Act, as authorized under N.J.S.A. 46:10B-29b. Regardless of which alternative method for seeking damages against an assignee the borrower chooses to pursue, whenever a borrower alleges assignee or holder liability pursuant to 46:10B-27, the limitations and conditions set forth in the applicable subsections of 46:10B-27 shall apply to such assignee liability.

(h) Any borrower asserting a claim under 46:10B-22 et seq. may, in appropriate circumstances, recover damages under both 46:10B-27.a and 27.c from one assignee on the basis of separate claims brought simultaneously under 46:10B-27.a and 27.c in connection with the same loan transaction. In such a case the limitations on damages set forth in 46:10B-27 would apply to the respective claims made under 46:10B-27.a and 27.c.

(i) The limitations upon and conditions for assignee liability prescribed by 46:10B-27 may not be avoided by a borrower seeking to obtain separate compensatory and punitive damages against the same assignee. The limitations on damages set forth in 46:10B-27 apply to the total of all types of damages.

(j) If a seller of home improvements or manufactured homes is not otherwise involved in the transaction as specified in N.J.S.A. 46:20B-27.a, the loan shall not give rise to assignee liability pursuant to 46:10B-27.a. This rule applies irrespective of whether the loan is secured by a first lien, or by a second or subsequent lien (sometimes referred to as a "junior lien"), whether the transaction is a cash-out refinance, and whether the proceeds of the loan are used to pay for home improvements or to purchase a manufactured home.

1. A seller of manufactured homes or home improvements who has referred a borrower to a creditor shall be deemed to be otherwise involved as set forth in 46:10B-27.

2. Where a borrower refinances without the involvement of a seller of manufactured homes or home improvements as set forth in 46:10B-27.a and subsequently uses the funds obtained in the process to pay for a manufactured home or for home improvements, the seller of manufactured homes or home improvements shall not be deemed to be otherwise involved in the transaction.

(k) The exercise of reasonable due diligence as referenced in 46:10B-27.b(3) does not, in all cases, require compliance review of one hundred percent of the loans being acquired. Depending upon the size of the loan pool being purchased or acquired by an assignee and/or the assignee being aware of information material to the determination of whether a lender engages in making high-cost home loans, including but not limited to any indication of the presence of high cost home loans in a loan pool, sampling, if properly performed, shall be considered reasonable due diligence by the Department. In order for sampling to be considered reasonable due diligence by the Department, purchasers or assignees shall, at a minimum, conduct quality control review of appropriate loan documentation at the beginning of the buyer/seller relationship, whenever a particular problem is identified, and throughout the relationship by random sampling. When a loan pool is very small or initial review has uncovered a high number of high cost loans, more extensive review is required to meet the reasonable due diligence standard.

(l) Creditors may utilize third party software packages or internally developed computer programs to comply with the requirements of 46:10B-27.b(3) or to determine whether loans are home loans or high cost home loans. Such software programs shall be calibrated and tested prior to use and periodically tested as part of an ongoing compliance review process. Periodic manual oversight and monitoring shall be done to ensure that the software is performing adequately and to evaluate matters not addressed by the software.

(m) A creditor may secure documentation from the borrower in which the borrower represents that no contractor or seller referred the borrower to the creditor, arranged the loan or was otherwise involved in facilitating the loan transaction. The Department shall consider such documentation when contemplating the exercise of its administrative authority pursuant to the Act.

N.J. Admin. Code § 3:30-8.2