A5257

An Act limiting acquisition of single-family homes by certain entities and supplementing chapter 27D of Title 52.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. The Legislature finds and declares that:

a. The Great Recession of 2008-2009 and the COVID-19 pandemic contributed to fundamental changes in the real estate market and facilitated a dramatic transfer of wealth from low-, moderate-, and middle-income households to the wealthy, due in substantial part to the surge of institutional investors in the residential real estate market that purchase and convert substantial numbers of single-family homes into rental properties;

b. Single-family homes purchased by institutional investors may be completely taken off the market for individual homebuyers, leading to the concentration of single-family homes, capital, and market power in the hands of large institutional investors;

c. Institutional investors thereby hinder the ability of individual homebuyers to compete with and purchase single-family homes, since institutional investors have a ready supply of capital, high liquidity, and significant bargaining power compared to individual homebuyers;

d. Homeownership is essential for building wealth and for retirement, including through equity, tax deduction incentives, and capital gains exclusions on sales, and therefore provides for generational wealth;

e. The influx of institutional investors in the real estate market has contributed to the increase in the cost of living, which has rapidly accelerated since 2008, making the American dream of homeownership unattainable for many;

f. The unique structure of the housing market enables institutional investors, through their purchasing behavior, to manipulate both supply and demand in the markets for single-family home sales and single-family home rentals;

g. To account for the gross imbalance in market power between institutional investors and individual homebuyers in New Jersey, it is critical for legislative responses to not only place reasonable restrictions on the ability of institutional investors to dominate the residential real estate market, but also to increase the power of individual homebuyers to compete with institutional investors; and

h. Therefore, it is necessary and proper for the Legislature to place reasonable restrictions on institutional investors related to the purchase of single-family homes.

2. As used in P.L. , c. (C. ) (pending before the Legislature as this bill):

"Affordable housing" means an inclusionary development, as defined pursuant to subsection f. of section 4 of P.L.1985, c.222 (C.52:27D-304), and other low- and moderate-income housing.

"Beneficial owner" means, with respect to an entity, an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, exercises substantial control over the entity, or in aggregate owns or controls, along with ownership or control by family members within the third degree of consanguinity of the individual, through affiliated entities, or investment vehicles, not less than 10 percent of the ownership interests of the entity. "Beneficial owner" shall not include:

(1) a minor;

(2) an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual;

(3) an individual acting solely as an employee of a corporation, limited liability company, or other similar entity and whose control over or economic benefits from such entity is derived solely from the employment status of the person;

(4) an individual whose only interest in a corporation, limited liability company, or other similar entity is through a right of inheritance; or

(5) a creditor of a corporation, limited liability company, or other similar entity.

"Commissioner" means the Commissioner of Community Affairs.

"Condominium" the form of real property ownership provided for under the "Condominium Act," P.L.1969, c.257 (C.46:8B-1 et seq.).

"Cooperative" means a housing corporation or association which entitles the holder of a share or membership interest thereof to possess and occupy for dwelling purposes a house, apartment, or other structure owned or leased by said corporation or association, or to lease or purchase a dwelling constructed or to be constructed by said corporation or association.

"Covered entity" means a person or entity that pools capital to purchase securities, real property, and other investment assets or originates loans, including entities in the form of:

(1) a partnership, corporation, limited liability company, or trust;

(2) an affiliate, subsidiary, or holding company of a partnership, corporation, limited liability company, or trust;

(3) a beneficial owner of a partnership, corporation, limited liability company, or trust;

(4) a beneficial owner of an affiliate, subsidiary, or holding company of a partnership, corporation, limited liability company, or trust; or

(5) a private equity or venture capital investor.

"Low-income housing" means the same as the term is defined pursuant to subsection c. of section 4 of P.L.1985, c.222 (C.52:27D-304).

"Minor" means a person under the age of 18 years.

"Moderate-income housing" means the same as the term is defined pursuant to subsection d. of section 4 of P.L.1985, c.222 (C.52:27D-304).

"On the market and available for purchase" means the status of real property, on which real property there is constructed or is to be constructed, a single-family home:

(1) which real property is listed by a real estate agent or other similar real estate professional, or the seller of the real property, on a multiple listing service, or other similar database, for which, if the seller has chosen to use a real estate agent or other similar real estate professional, the seller has signed a contract with the real estate agent or other similar real estate professional for the real estate agent or other similar real estate professional to advertise the real property to potential buyers; and

(2) for which the seller is accepting bids or offers for the purchase of the real property, and which listing is easily accessible by the public and active, active with contract, pending, contingent, or back on the market.

"Real estate agent" means a real estate broker, broker salesperson, sales person, or real estate salesperson licensed with a referral company pursuant to R.S.45:15-1 et seq.

"Single-family home" means a residential property and any ownership interest of a residential property, consisting of one to four dwelling units. A "single-family home" shall include a townhome, townhouse, condominium unit, or cooperative unit.

"Townhome" or "townhouse" means a single-family dwelling unit, constructed in a group of three or more attached units in which each unit extends from foundation to the roof and has a yard or public way on not less than two sides.

3. a. A covered entity shall not contact the owner of a single-family home, or the agent of that owner, with respect to that single-family home, during the first 60 days that the single-family home is on the market and available for purchase. A covered entity shall not place a bid on or purchase, directly or indirectly, or through any combination of the covered entity’s constituent persons or entities, a single-family home in this State during the first 60 days that the single-family home is on the market and available for purchase. A covered entity shall not lease a single-family home acquired or purchased by the covered entity for a period of five years following the date of acquisition or purchase.

b. Except as provided in subsection d. of this section, the provisions of P.L. , c. (C. ) (pending before the Legislature as this bill) shall not apply to:

(1) a tax exempt nonprofit organization that is described in section 501(c) of the Internal Revenue Code (26 U.S.C. s.501(c)) and exempt from federal taxation pursuant to section 501(a) of the Internal Revenue Code (26 U.S.C. s.501(a)), which purchased a single-family home or homes for the exclusive purpose of providing, and which serve to provide, affordable housing in this State;

(2) a financial institution, including a credit union, or a covered entity, as a direct result of any foreclosure, or a secured transaction pursuant to the "Uniform Commercial Code - Secured Transactions," N.J.S.12A:9-101 et seq.;

(3) a covered entity, which, as a condemnor, as the term is defined pursuant to subsection (b) of section 2 of P.L.1971, c.361 (C.20:3-2), places a bid on, acquires, or purchases a single-family home pursuant to the "Eminent Domain Act of 1971," P.L.1971, c.361 (C.20:3-1 et seq.);

(4) a governmental authority; or

(5) such other covered entities that the commissioner, in consultation with the Director of the Division of Consumer Affairs in the Department of Law and Public Safety, determines to be necessary to effectuate the provisions of P.L. , c. (C. ) (pending before the Legislature as this bill), in the public interest, and necessary to preserve the quantity of single-family homes in this State. A covered entity, subject to an exemption pursuant to this paragraph, shall provide additional information that the commissioner determines to be necessary for the covered entity to qualify for an exemption pursuant to this paragraph and that effectuates the purposes of P.L. , c. (C. ) (pending before the Legislature as this bill).

c. Upon acquiring a single-family home, a covered entity shall submit to the commissioner, on a form established by the Department of Community Affairs, in consultation with the Division of Consumer Affairs in the Department of Law and Public Safety, a disclosure containing the information required pursuant to this subsection, and such other information as required by the rules and regulations promulgated by the commissioner pursuant to P.L. , c. (C. ) (pending before the Legislature as this bill), which information shall include but not be limited to: an assertion, under penalty of perjury, of the buyer’s status as a covered entity; the name and mailing address of the buyer or buyer’s agent; and certification of a notary public.

d. A person or entity in the county or vicinage in which the single-family home is located, may file a complaint in the Superior Court of New Jersey, Law Division, against a covered entity that violates subsection a. of this section. If the court finds the covered entity violated subsection a. of this section, the covered entity shall alienate the single-family home within six months of the court’s determination, and any profit received shall be payable to the Attorney General. In addition, an amount equal to the profit received shall also be paid to, and proportionately divided amongst, any person or entity adversely and directly affected by a violation, which shall be construed liberally, who files a complaint in the Superior Court of New Jersey, Law Division in the county or vicinage in which the single-family home is located within 24 months of the date that the violation occurred.

e. (1) It shall be an unlawful practice, pursuant to and in violation of the New Jersey consumer fraud act, P.L.1960, c.39 (C.56:8-1 et seq.), for a covered entity to place a bid on or purchase a single-family home in violation of subsection a. of this section.

(2) A covered entity that violates subsection a. of this section shall be liable to a civil penalty per violation as provided for in this paragraph, plus fees and expenses, as follows:

(a) A covered entity that violates subsection a. of this section shall be liable to a civil penalty not exceeding $250,000 per violation if the court finds the covered entity willfully violated this section, which shall be collected in a civil action by a summary proceeding pursuant to the "Penalty Enforcement Law of 1999," P.L.1999, c.274 (C.2A:58-10 et seq.). The Superior Court, Law Division in the county or vicinage in which the single-family home is located shall have jurisdiction over the proceedings. Process shall be in the nature of a summons or a warrant, and shall issue upon the complaint of the Attorney General or the Commissioner of Community Affairs.

(b) Notwithstanding a penalty collected pursuant to subparagraph (a) of this paragraph, a covered entity that violates subsection a. of this section shall be subject to a complaint at the discretion of any person or entity directly and adversely affected by a violation, which shall be construed liberally, if the directly and adversely affected person or entity files a complaint with the Superior Court of New Jersey, Law Division in the county or vicinage in which the single-family home is located within 24 months of the date that the violation occurred. The complainant shall be permitted to recover: a civil penalty not exceeding $250,000 if the court finds the covered entity willfully violated this section, which shall be proportionately divided amongst any person or entity directly and adversely affected by a violation; reasonable attorney’s fees; court costs; expenses for expert witnesses; and other related fees and expenses incurred in proving a violation of subsection a. of this section.

f. Notwithstanding the provisions of subsections d. and e. of this section, a court that receives a complaint against a covered entity for violation of this section shall send administrative notice of the pending action to the covered entity, which shall have 60 days from the receipt of the notice to cure the alleged violation. If the covered entity fails to cure, or take substantial steps to cure, the alleged violation within the 60-day time period, the penalties in subsections d. and e. of this section shall apply.

g. Nothing in this section shall be construed to mean that a private cause of action shall have primacy over public administrative action.

4. The Commissioner of Community Affairs shall, in consultation with the Director of the Division of Consumer Affairs in the Department of Law and Public Safety and the Director of the Division of Taxation in the Department of the Treasury, and in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), adopt rules and regulations to implement the provisions of P.L. , c. (C. ) (pending before the Legislature as this bill). The rules and regulations adopted pursuant to this section shall additionally specify the ownership and control structures that shall identify an individual as a beneficial owner, which shall include any individual who is an ultimate beneficial owner and any individual who in aggregate, along with ownership or control by family members within the third degree of consanguinity of the individual, or through affiliated entities or investment vehicles, owns or controls not less than 10 percent of the ownership interests of the entity. The rules and regulations adopted pursuant to this section shall include a form for the disclosure required pursuant to subsection c. of section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill).

5. This act shall take effect immediately.

STATEMENT

This bill prohibits a covered entity, as defined in the bill, from contacting the owner, or agent of the owner, of a single-family home with respect to that single-family home, during the first 60 days that the home is on the market and available for purchase, including to place a bid on or purchase, directly or indirectly, or through any combination of the covered entity’s constituent persons or entities, the home. The bill also prohibits a covered entity from leasing a single-family home acquired or purchased by the covered entity for a period of five years following the date of acquisition or purchase. The bill authorizes a person or entity in the county in which a single-family home acquired by a covered entity in violation of the bill, the Attorney General, and the Commissioner of Community Affairs to file a complaint in the Superior Court of New Jersey, Law Division. A court that receives a complaint pursuant to the bill is to send administrative notice of the pending action to the covered entity, which may, within a specified period, cure the violation. If the covered entity fails to cure, or take substantial steps to cure, the violation, the covered entity would be subject to public and private enforcement action.

The bill directs that if the court finds that a covered entity violated the bill, the covered entity is to alienate the single-family home within six months of the court’s determination, and any profit received is to be payable to the Attorney General. In addition, an amount equal to the profit received is to also be paid to, and proportionately divided amongst, any person or entity adversely and directly affected by a violation, as specified in the bill. The complainant shall be permitted to recover reasonable attorney’s fees, certain other fees, and a civil penalty not exceeding $250,000 if the court finds the covered entity willfully violated the bill. The bill establishes that a violation of the bill is to constitute a violation of the New Jersey consumer fraud act.

The bill exempts from the definition of a covered entity: tax exempt nonprofit organizations, financial institutions, a covered entity which, as a condemnors, places a bid on, acquires, or purchases a single-family home under eminent domain, a governmental authority, or covered entities that the Commissioner or Community Affairs exempts in the public interest.

The bill directs the Commissioner of Community Affairs, in consultation with the Director of the Division of Consumer Affairs in the Department of Law and Public Safety and the Director of the Division of Taxation in the Department of the Treasury, adopt rules and regulations to implement the provisions of the bill. The bill would take effect immediately.