When the economy takes a downturn, businesses often get into trouble and fall behind on mortgage payments. This is known as “defaulting” on a mortgage. The lender then typically begins foreclosure proceedings in order to sell the property and claim repayment of the loan. Commercial foreclosures are conducted using one of two procedures; either judicial or non-judicial. How a particular foreclosure is handled depends on the law of the state where the property is located and the language and terms of the mortgage document. There are five financial issues that every plaintiff must consider before trying to resolve a commercial foreclosure action.
Looking at commercial foreclosure cases in New Jersey shows that clients are either uninformed or indifferent to the consequences of ignoring these issues.
Sheriff’s Fees In New Jersey
As a commercial foreclosure action is nearing completion, many plaintiffs grow impatient with the process that was actually designed for residential matters. Therefore, when a foreclosure is nearing its end, many plaintiffs urge counsel to obtain a sheriff’s sale date as soon as possible. That may be the best course of action in a particular circumstance, however, a patient plaintiff can avoid substantial and unnecessary sheriff’s fees in these circumstances.
Realty Transfer Fee In New Jersey
If a commercial foreclosure settlement results in the plaintiff taking title to the property, the plaintiff must be cognizant of liability for realty transfer fees. Upon the recording of a deed in New Jersey, a realty transfer fee must be remitted based on the amount of consideration paid for the property.
Mansion Tax In New Jersey
As per the realty transfer fee statutes, the “fee for the transfer of certain real property is independently known as “mansion tax.” The mansion tax is 1% of the entire consideration for the purchase of certain types of property if the price exceeds $1 million. The mansion tax applies to the transfer of property classified as Class 2 (residential) and Class 4A (commercial), in addition to certain other types of property specified in the statute.
Bulk Sales In New Jersey
If a business makes a sale in bulk of any part or the whole of the business’s assets the transaction is subject to New Jersey’s Bulk Sale Law. The law requires the purchaser of the business’s assets to provide certain notice to the Division of Taxation at least 10 business days in advance of the transaction. If taxes are owed, the Division of Taxation will advise the purchaser of a required escrow that must be established with funds withheld from the purchase price, pending resolution of the tax deficiency. If the purchaser fails to provide the Division of Taxation with the proper notice of a bulk sale, or fails to establish an escrow account upon request, the purchaser will be jointly liable for the payment of all of the seller’s tax deficiency.
Tax Implications of A Commercial Foreclosure Settlement In New Jersey
A plaintiff negotiating the settlement of a foreclosure action should be mindful of the tax implications for the borrower of settling recourse versus non-recourse loans. With non-recourse debt, a sheriff’s sale is treated for tax purposes as a sale of the property to the lender in exchange for the outstanding balance of the debt. The borrower may have a capital gain or loss based on the difference between the amount of the debt and the adjusted basis of the property.
Therefore before attempting to resolve a commercial foreclosure action, a plaintiff should be aware of the potential fees and taxes that are entailed therein. Proper planning can oftentimes help to avoid significant liabilities. Contact an experienced foreclosure defense firm such as Patel & Soltis, LLC. today.
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