In a series of recent decisions, New Jersey courts appear to be taking a stance against defendants raising, as a last-minute defense, that a party lacks standing to foreclose. This is good news for lenders and their assignees, who, prior to these decisions, faced the prospect of proceeding to final judgment of foreclosure, only to have a party appear at the last minute, allege a lack of standing to foreclose, and send the process back to square one.
The changing body of case law began with the Appellate Division’s opinion in Deutsche Bank Trust Company Americas v. Angeles, 428 N.J. Super. 315 (App. Div. 2013). In that case, defendant failed to defend the action or assert a standing issue until two years after default judgment was entered and more than three years after the complaint was filed. Id. at 316. Interestingly, the Appellate Division acknowledged that defendant raised a valid concern about plaintiff’s standing to foreclose, but nonetheless refused to vacate final judgment. In explaining its decision, the Appellate Division noted:
In foreclosure matters, equity must be applied to plaintiffs as well as defendants. Defendant did not raise the issue of standing until he had the advantage of many years of delay. Some delay stemmed from the New Jersey foreclosure system, other delay was afforded him through the equitable powers of the court, and additional delay resulted from plaintiff's attempt to amicably resolve the matter. Defendant at no time denied his responsibility for the debt incurred nor can he reasonably argue that [Plaintiff] is not the party legitimately in possession of the property. Rather, when all hope of further delay expired, after his home was sold and he was evicted, he made a last-ditch effort to relitigate the case. The trial court did not abuse its discretion in determining that defendant was not equitably entitled to vacate the judgment.
Id. at 320.
Again, in U.S. Bank National Association v. Rodriguez, 2013 WL 238179 (App. Div. Jan. 23, 2013), the Appellate Division refused to vacate final judgment and a subsequent sheriff’s sale where defendant asserted a lack of standing for the first time after final judgment had been entered and the sheriff’s sale completed. In that case, the Appellate Division characterized the last-minute defense as “too little and too late.” Id. at *3. The Appellate Division cited the Angeles decision favorably in holding that equitable considerations justified rejecting “defendant’s belated attempts to raise as a defense the plaintiff’s lack of standing.” Id.
Similarly, in HSBC Bank USA v. Gomez, 2013 WL 105303 (App. Div. Jan. 10, 2013), defendants filed a motion to vacate default judgment 16 months after default judgment was entered and one day before a scheduled sheriff’s sale. Among other things, defendants in that case argued that plaintiff lacked standing to foreclose because it did not demonstrate that it took possession of the underlying note and mortgage on or before the date the complaint was filed. Id. at *5. In support of this argument, defendants relied on two cases in which the Appellate Division had permitted defendants to raise standing as a defense to foreclosure complaints — Deutsche Bank National Trust Company v. Mitchell, 422 N.J. Super. 214 (App. Div. 2011), and Wells Fargo Bank N.A. v. Ford, 418 N.J. Super. 592 (App. Div. 2011). However, the court distinguished those cases from the case before it on the basis that defendants in those cases had defended against the foreclosure and did not wait until final judgment was entered to do so:
As distinguished from the present case, however, in both Ford and Mitchell, the defendants timely filed answers and counterclaims in the foreclosure litigation, questioning the validity of the assignment, and contesting the plaintiff's standing to file the foreclosure complaint, and our reversals were of the trial courts’ grant of summary judgment. In other words, the defendants in the other cases actively defended the foreclosure litigation from the outset and did not sit on their rights.
Id. (emphasis added).
In TruCap Grantor Trust 2010-1 v. Serido, 2012 WL 6698715 (App. Div. Dec. 27, 2012), the Appellate Division, again relying upon Angeles, rejected a last minute motion to vacate final judgment. In that case, a residential homeowner raised the alleged lack of standing in a motion to vacate final judgment after not defending against the foreclosure complaint in the three years that it was pending. The court ruled that it would be inequitable to permit defendant to raise the defense at the last minute:
In determining that the final judgment should not be vacated after plaintiff waited three years to contest the foreclosure, the court explained, “[f]rom a pure point of equity, the defense was never raised. Had it been raised with an answer filed in the beginning, the Court may have permitted an amended pleading and may have said start all over again.”
Id. at *2. In addition, the Appellate Division concluded that plaintiff had standing to foreclose because it accepted plaintiff’s representation that it had possession of the note at the time it filed the foreclosure complaint. Id. at *1.
Finally, in Serido, the Appellate Division relied upon Deutsche Bank National Trust Company v. Russo, 429 N.J. Super. 91 (App. Div. 2012). In Russo, defendants failed to defend against a foreclosure complaint for a number of years, only to raise lack of standing in a motion to vacate final judgment. As with all of the cases cited above, the Appellate Division emphasized that defendants did not deny the validity of the note or their default. Id. at 97-98 (“Throughout the years of correspondence and orders, at no time have the defendants ever said you have the wrong parties, or we didn't borrow the money, or we didn't default. Basically, they've accepted the underlying aspect of the action over many, many months and years.”). Similarly, like Serido, the Appellate Division held that plaintiff in fact had standing because it had possession of the note at the time it filed its foreclosure complaint. Id. at 98. Nonetheless, even if this had not been the case, the Appellate Division held that defendants still would not have been permitted to avoid final judgment because of the alleged lack of standing:
[E]ven if plaintiff did not have the note or a valid assignment when it filed the complaint, but obtained either or both before entry of judgment, dismissal of the complaint would not have been an appropriate remedy here because of defendants’ unexcused, years-long delay in asserting that defense. Therefore, in this post-judgment context, lack of standing would not constitute a meritorious defense to the foreclosure complaint.
Id. at 101 (emphasis added).
Ultimately, Russo and this growing body of case law demonstrate that an alleged lack of standing is construed differently when raised at the last minute than when it is raised, as it should be, in the earliest stages of litigation. In addition, these cases suggest that the Appellate Division is now convinced that equity must flow in both directions, and that it is inequitable to allow a defendant to do nothing for years while a foreclosure complaint is pending, and then make a last-minute motion seeking to start the process over. Finally, it is important to note that each of these cases involved residential foreclosures, where courts are generally more likely to afford the defendant every benefit of the doubt. It seems likely that if this situation arises in a commercial foreclosure, New Jersey courts would follow the Appellate Division's lead and not allow a last-minute standing defense to vacate a final judgment of foreclosure.