Husband’s Foreclosure Defense? I Had No Idea My Wife Entered Into Those Mortgages (Or Had Those Credit Cards, Or Drained Our Savings . . . )

by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Unfortunately, New Jersey still has the highest foreclosure rate in the country. Most weeks, the Appellate Division issues several decisions related to residential foreclosure, and most follow a predictable pattern – a lender forecloses and obtains final judgement of foreclosure, the borrower appeals, claiming that the bank lacked standing to foreclose, and the Appellate Division affirms entry of final judgment of foreclosure. But every now and then a case comes along that breaks that mold. U.S. Bank National Association v. Gallagher is one of those cases. (Note: I am not related to the Gallaghers in this case or the Gallaghers in the Showtime series, Shameless, but the facts of this case might actually fit in that show.)

Gallagher starts off normal enough. Defendants were married in 1986. In 1996 they bought property and built their marital home. Two years later, they used the property as security for a loan. Over the next ten years, they refinanced the mortgage on the property four times. Eventually, however, they were unable to make the monthly payments and the bank foreclosed.

That is when it gets interesting.

Since 1990, the husband’s job required him to be away from home during the week. He left Monday morning and came back Friday evening. As a result, his wife was responsible for running the household and handling the family’s finances. Turns out, she never told her husband about the last few mortgages. She allegedly forged his name on a power of attorney so that she could enter into the mortgages, presented him with fake tax returns and mortgage statements, and even “solicited individuals to pose as mortgage or bank representatives to address any discrepancy in the records.” (The wife claimed that she did all of this because her husband was physically and verbally abusive to her whenever they discussed their finances, and also claimed that when her husband allowed her to handle the couple’s finances, he implicitly allowed her to enter into mortgages on his behalf without his specific consent.) When the husband found out about the mortgages — and that the couple’s investment account, which he thought contained approximately $1.6 million, was empty – he confronted his wife, “packed a bag, left the marital residence, and filed for divorce.”

He also tried to stop the lender from foreclosing. He filed an answer to the lender’s foreclosure complaint, arguing that the mortgage was obtained by fraud and was unenforceable. The bank moved for summary judgment, arguing, among other things: that an equitable mortgage existed because the husband “had every opportunity to prevent this by simply monitoring what his wife was doing for the past twenty years;” and that he had ratified the mortgages because they appeared on a credit report he received in 2009 (although he denied requesting or receiving it) and because, during an argument, his wife’s sister had once told him that he had a $4,000 monthly mortgage payment (in response to which he allegedly “laughed,” saying the payment was only half that amount). The husband argued that there were factual disputes on each of these issues, and others, so the court should not grant summary judgment and strike his answer.

The trial court agreed with the lender. It held that the wife primarily used the money received from the various refinanced mortgages to pay off credit card debt, which she claimed was incurred for family-related expenses. Because the husband could not prove that this was false, the trial court reasoned that he was “an equitable mortgagor who reaped the benefits of the subject mortgage.” (In other words, even if he didn’s know about the mortgages, the proceeds from them was used to pay off expenses he otherwise would have had to pay off.) And, while the trial court did not hold that the credit report or the wife’s sister’s comments proved that the husband ratified the mortgages, the trial court “tacitly acknowledged its difficulty in believing that [the husband], an intelligent man who held high-powered positions, never checked his mortgage statements for over twenty years.”

On appeal, however, the Appellate Division reversed both of these decisions. It held that the trial court improperly weighed the evidence and made credibility determinations, both of which are improper during summary judgment.

On the equitable mortgage issue, the only evidence about how the money was used came from the wife’s deposition testimony during the couple’s divorce proceedings, which the husband argued was entirely self-serving. Also, the husband’s forensic accountant concluded – again, during the couple’s divorce proceedings – that the wife had misappropriated more than $66,000 each year, “in excess funds after paying lifestyle expenses.” These facts, which were presented to the trial court in the foreclosure lawsuit, created issues that could not be resolved during summary judgment.

On the ratification issue, not only did the trial court make a credibility determination about the husband’s claim that he never checked his financial records, but it also ignored his testimony that the wife had provided him with false statements and, “when he inquired[,] presented him with impostors to explain any discrepancies.”

In light of these failings, the Appellate Division reversed the trial court and remanded the case. Of course, this does not mean that the husband will ultimately prevail, it just means that he has survived summary judgment. So this case, which even the trial court described as “a most unusual case,” will continue on, at least for a while.

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