The common practice in New Jersey is to start a mortgage foreclosure action in the Chancery Division of the State Superior Court. Many practitioners also promote the use of the federal court system as a forum that might short circuit use of questionable defense tactics and thereby expedite the process. There are real questions on whether federal court is as effective as a forum as some might profess.
There is little controversy that federal judges have a tendency to move their cases faster than do state court judges. Also, experience tells us that federal courts are less tolerant of unsubstantiated defenses and often more quickly get passed the frivolous to resolve cases expeditiously and without undue delay. However, getting to judgment is just part of the problem in foreclosure cases. After entry of judgment, there must be a judicial sale and getting to the sale is where the state court system might have the advantage.
In state court, the County Sheriff is the official who handles the judicial sale of the mortgaged property. Sheriffs have been doing this for many years, are set up internally to process and complete the process in a routine way, and have the experience and knowledge to recognize and deal with out of the ordinary situations that often arise without warning as the sale process moves forward. The same cannot be said for the federal system.
In federal court, the sale must be conducted by the U.S. Marshall Service or by another official such as a receiver or a special master appointed by the court for that purpose. Certainly the Marshall Service can and will conduct the sale if so directed by the court. But it is not something that is frequently done, and some say not something that the Marshall’s office want to be doing given the alternatives of providing protection and transportation services for the justice system and its buildings, personnel and persons in federal custody.
Another problem is what to do if there is a delay in the sale process. For example, in one case when the foreclosure case was completed with the entry of judgment and direction for a receiver to sell the property, the property owner filed bankruptcy and two more years of litigation followed before the United States Bankruptcy Court. In the meantime, the federal district court judge ordered that the foreclosure case be closed, and the bankruptcy judge discharged the receiver. Now, if the owner defaults under its bankruptcy plan of reorganization the lender will have the right to again have the property offered for sale. But, who will sell it and where will the lender go to restart that process? The federal district court judge does not want to hear about the case anymore and the receiver is no longer involved. What to do is the question?
If this were in New Jersey Superior Court, the process would be simple. The lender would have a writ of execution from the original foreclosure case which is a directive to the county sheriff to sell the property and the writ would be just as effective today as it was when originally issued by the Judge of the Chancery Court who issued the directive. So, instead of having to move to reopen the federal case that has been closed, counsel for the lender would simply take the old writ to the sheriff and a sale would be scheduled under normal procedures.
So, while certain aspects of foreclosure in federal court might be beneficial to litigants, a view of the entire picture may tell a different story. Certainly, if the lender expects a contested proceeding and can qualify for federal court jurisdiction, federal court should be considered. But, if bankruptcy and associated delays are a real possibility, the alternative of state court foreclosure may prove to be more efficient in the long run.
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