On July 10, 2026, the Appellate Division affirmed an interlocutory order of the Superior Court of New Jersey, Chancery Division, Mercer County which held that subsection (g) of the Community Wealth Preservation Program (“CWPP”), N.J.S.A. 2A:50—64, enacted on January 12, 2024, is unconstitutional as applied because it violates the Takings Clause of the Federal and State Constitutions by depriving property owners of their right to recover surplus equity in a foreclosure sale and depriving junior lienholders of their interest in potential surplus funds following a sheriff’s sale.
By way of brief background, the issue presented on appeal arose from several consolidated chancery cases involving similar challenges to the legality of N.J.S.A. 2A:50-64(g), which provision allowed a nonprofit community development corporation (“NCDC”) to exercise its “right of second refusal” by purchasing a foreclosed-upon property for only the pre-determined upset price. The upset price is defined by the CWPP as “the minimum amount that a foreclosed-upon property shall be sold for in a sheriff’s sale as determined by the foreclosing plaintiff.” N.J.S.A. 2A:50-64(p). Generally, the upset price is often far lower than the property’s fair market value and only contemplates satisfying the balance due on the foreclosing plaintiff’s mortgage. In practical terms, when an NCDC exercises its right of second refusal, all other parties are prevented from engaging in competitive bidding at sale, thus precluding property owners from recovering surplus equity and junior lienholders from recovering potential surplus funds.
Against the backdrop of the United States Supreme Court’s decisions in Tyler v. Hennepin County, 598 U.S. 631 (2023) and 257-261 20th Avenue Realty, LLC v. Roberto, 259 N.J 417 (2025), the Appellate Division reasoned that if property owners are entitled to surplus equity, junior lienholders must also be entitled to their interest in the potential surplus funds following a sheriff’s sale and subsection (g) of the CWPP results in the deprivation of this constitutionally protected property interest without affording just compensation to the aggrieved parties. The Court rejected the State’s arguments that Rule 4:64-1(e) and 4:65-5 provide adequate procedural mechanisms to withstand a constitutional challenge by highlighting that these rules are largely dependent on motion practice and only provide discretionary remedies that do not adequately protect a property owner or lienholder from the potential loss of equity. The State’s assertion that alternate remedies such as the right of redemption or pursuing the property owner’s personal assets were likewise unconvincing as the Court found that these remedies do not provide junior lienholders with sufficient opportunities to protect their interests in surplus equity.
For more information, contact New Jersey Managing Attorney, Salvatore Carollo.