N.J. Appellate Division Affirms Striking of Community Wealth Preservation Program Second-Refusal Pro
By Jeanette O’Donnell, Esq.
Powers Kirn, LLC *
USFN Member (NJ, PA)
The New Jersey Appellate Division recently affirmed a trial court decision striking down a provision of the New Jersey Community Wealth Preservation Program Act (“CWPP”) as unconstitutional. The provision allowed community nonprofit corporations a right of second refusal at sheriff’s sales.
On January 12, 2024, the CWPP was signed into law “to promote equity and fairness in foreclosure sales by providing opportunities for foreclosed upon residents and their next of kin, tenants, and other prospective owner-occupants – along with nonprofit community development corporations – to purchase and finance a foreclosed-upon home.” Press Release, Off. of the Governor, Governor Murphy Signs Legislation Establishing Community Wealth Preservation Program (January 12, 2024). The CWPP made many changes to the sheriff’s sale process in New Jersey. However, implementation of the CWPP resulted in unintended consequences.
The CWPP grants an individual homeowner, their next of kin, or a tenant occupying the foreclosed-upon property a “right of first refusal,” which allows these groups to purchase the property on the day of the sheriff’s sale for either the original upset price or the final upset price listed for the sale of the property, whichever is lower. “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). The CWPP also granted a “right of second refusal” to nonprofit community development corporations (“NCDCs”). N.J.S.A. 2A:50-64(g). An NCDC is defined as a “not-for-profit organization, whose mission includes community revitalization through the restoration of vacant and abandoned property to create or preserve affordable housing.” N.J.S.A. 2A:50-64(p). If the right of first refusal was not exercised, an NCDC could exercise its right of second refusal to purchase the property for the upset price on the day of the sheriff’s sale. The constitutionality of this right of second refusal was the issue before the Appellate Division.
In making its determination, the N.J. Appellate Division acknowledged in Atlantic County Sheriff’s and Joseph O’Donoghue v. State of New Jersey, Docket No. A-1098-25 (July 10, 2026), that the consolidated cases on appeal arose in the wake of the U.S. Supreme Court’s decision in Tyler v. Hennepin Cnty., 598 U.S. 631 (2023) and the New Jersey Supreme Court’s decision in 257-261 20th Ave., Realty, LLC v. Roberto, 259 N.J. 417 (2025).
In Tyler, the Court held that, by keeping surplus equity from a tax debt forfeiture of a homeowner’s property under Minnesota Tax Foreclosure Law, the County committed an unconstitutional taking in violation of the Takings Clause of the Fifth Amendment. 598 U.S. 639. Thereafter, in Roberto, the N.J. Court found that a homeowner has “a property right to surplus equity in real property,” and that the “forfeiture of surplus equity without just compensation” to the property owner in a tax sale violates the Takings Clause. 259 N.J. 427-428.
As written, when an NCDC exercised its right of second refusal, N.J.S.A. 2A:50-64(g) prevented other bidders, including junior lienholders, from bidding on the foreclosed-upon property. Therefore, even if the property was worth substantially more than the senior lien, competitive bidding was not permitted when an NCDC exercised its right of second refusal. As a result, no surplus was generated from the sale that could have gone to either junior lienholders or the former property owner.
The N.J. Appellate Division found that junior lienholders and property owners have a property interest in the surplus equity in a foreclosed home. Therefore, allowing “nonprofit community development corporations,” as defined by the Act, to exercise a right of second refusal to purchase the property for the upset price constituted an unconstitutional taking under the Takings Clause of the Fifth Amendment of the U.S. Constitution and State Constitution. Accordingly, subsection (g) of the CWPP was struck from the statute. However, the Appellate Court declined to invalidate the CWPP as a whole, and therefore all of the other portions of the CWPP remain in full force and effect.
Disclaimer: This article is provided for informational purposes only and does not constitute legal advice. Clients should consult counsel regarding the application of this decision to specific matters or files.
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USFNews - October 7, 2026
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