More Courts Reject Eleventh-Hour Attempts To Avoid Foreclosure Based On An Alleged Lack Of Standing

by:  Peter J. Gallagher

 Two more Appellate Division panels have refused to allow defendant's in foreclosure lawsuits to raise standing as an eleventh-hour defense.  As we previously reported — Changing Tide in Forclosure Litigation? Courts Taking Closer Look When Defendants Assert Lack Of Standing At Last Minute — there is now a clear trend against allowing defendants to stay silent in the face of a foreclosure lawsuit only to appear at the last minute, usually on the eve of a sheriff's sale, and seek to vacate final judgment based on an alleged lack of standing to foreclose.  Two recent Appellate Division cases continue to bring this point home. 

In IndyMac Bank FSB v. DeCastro, a residential borrower moved to vacate final judgment and dismiss the complaint 15 months after it was entered, arguing that he was not served with the complaint.  The motion was denied.  Defendant filed a second motion to vacate, arguing, for the first time, that the bank lacked standing to foreclose because it was not assigned the mortgage until after the complaint was filed.  This motion was denied as untimely and defendant appealed.  In an opinion, dated March 13, 2013, the Appellate Division affirmed.  In its decision, among other things, the Appellate Division rejected defendant's standing argument, noting: "[W]e have now made clear that lack of standing is not a meritorious defense to a foreclosure complaint."  Moreover, the Appellate Division held that defendant's standing argument was meritless "particularly given defendant's unexcused, years-long delay in asserting that defense or any other claim."  In arriving at this decision, the Appellate Division relied on many of the cases discussed in our prior post. 

Similarly, in WellsFargo Bank, N.A. v. Lopez, a different Appellate Division panel rejected another residential home owner's last-minute attempt to raise standing as a defense to the foreclosure complaint.  The facts in that case were a bit more egregious because the borrower contributed to the four-year delay between the entry of default and the filing of his motion to vacate by filing numerous bankruptcy petitions and seeking a stay to attempt to short sell the property.  Nonetheless, the Appellate Division affirmed the trial court's denial of the motion to vacate holding, among other things, that the lack of standing, even if true, was not a meritorious defense to a foreclosure complaint, particularly in the post-judgment context.  Again, the Appellate Division relied primarily on the cases included in our prior post.

When Can Foreclosing Lenders Be Accused Of Acting In Bad Faith?

 by:    Peter J. Gallagher

In a recent decision, the Chancery Division denied a lender’s motion to strike a borrower’s contesting answer in a foreclosure lawsuit, holding that the borrower had adequately pled a claim that the lender acted in bad faith.  While this decision is unique based on the facts of the underlying dispute, it does, by contrast, serve as a reminder that lenders generally cannot be held to have acted in bad faith when they simply attempt to enforce the terms of loan documents as written. 

In Wells Fargo Bank, N.A. v. Schultz, plaintiff obtained a mortgage from World Savings Bank (which later changed its name to Wachovia Mortgage, FSM, which was later acquired by and merged into Wells Fargo) under a “Pick-a-Payment” mortgage program.  Several years later, this program became the subject of a class action lawsuit, the settlement of which provided that Wells Fargo both pay class members, including defendant Schultz, a small sum and also make loan modifications available to them.  It is the second of these requirements that ended up getting Wells Fargo in trouble.  Defendant presented evidence to the court that led Judge Doyne to conclude that she was “getting the run around” from Wells Fargo, including by being told that she failed to submit documents that she certified that she had submitted, and when Wells Fargo eventually confirmed that she had submitted the documents, telling her that the modification program was no longer available.  Judge Doyne observed that defendant may not have a right to be approved for a specific modification, but that once Wells Fargo made one available to her, it was obligated to “act in good faith as to the provision of the modification.”  To be clear, Judge Doyne did not rule that Wells Fargo had acted with bad faith; instead, he simply ruled that defendant had pled enough in connection with her claims related to the modification that her answer could not be stricken. 

While this case presents a situation where a lender is alleged to have acted in bad faith after agreeing to entertain an application for a loan modification, the law in New Jersey is well settled that a lender cannot generally be deemed to have acted in bad faith when it seeks to enforce the terms of a note or mortgage as written.  Stated differently, lenders cannot be barred from enforcing loan and mortgage documents merely because they seek to enforce their express contractual rights.  Indeed, “a creditor's duty to act in good faith does not extend to foregoing its right to accelerate upon default or otherwise compromising its contractual rights in order to aid its debtor.” Glenfed Financial Corp. v. Penick Corp.   For instance, in Creeger Brick & Building Supply, Inc. v. Mid-State Bank & Trust Co., — a decision cited by the Appellate Division with approval in Glenfed — a Pennsylvania appeals court held:

. . . a lending institution does not violate a separate duty of good faith by adhering to its agreement with the borrower or by enforcing its legal and contractual rights as a creditor. The duty of good faith imposed upon contracting parties does not compel a lender to surrender rights which it has been given by statute or by the terms of its contract. Similarly, it cannot be said that a lender has violated a duty of good faith merely because it has negotiated terms of a loan which are favorable to itself. As such, a lender generally is not liable for harm caused to a borrower by refusing to advance additional funds, release collateral, or assist in obtaining additional loans from third persons. A lending institution also is not required to delay attempts to recover from a guarantor after the principal debtor has defaulted.

In other words, if the defendant in Schultz was accusing Wells Fargo of bad faith simply because the lender was seeking to enforce its rights under the plain language of the relevant note and mortgage, the result would likely have been different. 

Changing Tide In Foreclosure Litigation? Courts Taking Closer Look When Defendants Assert Lack Of Standing At Last Minute

by:  Peter J. Gallagher

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. 

 

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