Transfer Can Be Fraudulent Even If It Occurs Before Loan, Default, And Lawsuit Over Default On Loan

Fraud (PD)A recent Appellate Division decision should serve as a warning to anyone thinking about transferring assets and rendering themselves judgment proof before entering into a business deal. If the deal goes bad, the transfer might be deemed fraudulent and creditors might be able to look to the fraudulently transferred assets to satisfy their judgments. 

In Anastasi v. Barmbatsis, defendants, husband and wife, held all of the shares in a single-purpose entity that owned and operated a Stewart's Root Beer in Franklin Park, New Jersey. Shortly before procuring a loan to open a new Stewart's location with a partner, husband transferred his interest in the entity to wife, along with nearly all of his interest in another entity that the two owned. Husband then entered into a deal with plaintiff — verbal, but "apparently sealed with a handshake" — to borrow $50,000 to use to open the new restaurant. Defendants used this money, along with other funds, to open the restaurant.

Husband agreed to repay the loan in five to seven months. This was subsequently extended but husband failed to repay the loan even with the extension. Plaintiff sued and obtained a default judgment against husband for $50,000. In post-judgment discovery, plaintiff learned about the pre-loan transfers from husband to wife. Thereafter, he sued both husband and wife alleging, among other things, that the transfers violated New Jersey's Uniform Fraudulent Transfers Act (the "UFTA"). The trial court ruled in plaintiff's favor. It held that wife was not personally responsible for paying back the loan, but plaintiff could satisfy his judgment with the interests in the two entities that husband had transferred to wife.

 

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Borrowers Cannot Vacate Final Judgment Of Foreclosure Because They “Read Something Wrong”

Foreclosure (PD)
This might have seemed obvious, but the Appellate Division nonetheless recently confirmed that a borrower's claim that it "read something wrong" could not establish "excusable neglect" sufficient to vacate a final judgment of foreclosure.

In New Jersey Housing and Mortgage Finance Agency v. Wolinski, borrowers defaulted on their mortgage and their lender filed a foreclosure complaint. The first complaint named borrowers and "John Doe and Jane Doe 1-10 (Names Being Fictitious) Tenants/Occupants." This complaint was voluntarily dismissed against all parties, real and fictitious. The second complaint, filed approximately six months later, also named borrowers and "John Doe and Jane Doe 1-10 (Names Being Fictitious) Tenants/Occupants." This complaint was also voluntary dismissed, but only as to the fictitious defendants.

Borrowers never answered the complaint and the lender filed a request to enter default, and then obtained final judgment by default. The lender scheduled a sheriff's sale but the borrowers filed for bankruptcy protection. The lender moved to lift the bankruptcy stay. After this motion was granted, the borrowers moved to vacate final judgment. They argued: (1) that they misread the dismissal of the second foreclosure complaint to be, like the dismissal of the first one, a dismissal of all defendants, not just the fictitious ones; and (2) that the trial court abused its discretion when it allegedly miscalculated the amount due in the final judgment. The Appellate Division rejected both of these arguments.

 

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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.

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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Tenants Who Don’t Act Quickly On Claims For Breach Of Implied Warranty of Habitability Risk Being Left Out In The Cold

by:  Gregory S. Ricciardi

On May 15, 2012, the Appellate Division handed down its decision in Vitiello v. Marques, a commercial landlord tenant dispute.  The case involved a claim for constructive eviction, wherein the Plaintiff alleged that the leased premises was “exceptionally cold” as a result of a failing heater and cracked window frames, all of which the Landlord allegedly refused to repair.  As a result of the cold, the Plaintiff declared that the premises were uninhabitable, except that the tenant waited until the summer to actually vacate the premises.   The trial judge ruled and the appellate division affirmed that Plaintiff failed to establish the “factual predicate for constructive eviction.”   Relying on Reste Realty Corp. v. Cooper, the benchmark New Jersey Supreme Court Case on constructive eviction, the court reasoned that the plaintiff failed to prove that the Landlord’s conduct substantially interfered with the tenant’s use and enjoyment of the premises, such that departure from the property was justified. The second element of a constructive eviction claim is that the tenant must actually vacate the premises within a reasonable time after the conditions rendering the property inhabitable arise.

The takeaway for tenants in this case is to act quickly and decisively  if constructive eviction is the basis for which the tenant withholds rent or seeks to terminate a lease.  Hollow complaints and chilly inconvenience are no match for a well drafted, landlord protective lease.  Although the failure of a HVAC system may be the basis for a constructive eviction claim, do not wait until the summer to vacate the premises because the heat is not working, unless of course you live in Alaska. 

Four Residential Mortgage Lenders May Resume Uncontested Foreclosures: Will Long Processing Backlogs Return?

by:  Michael L. Rich

Mercer County Superior Court Judge Mary Jacobson ordered that four of New Jersey's six largest mortgage servicers may resume uncontested residential foreclosures after apparently demonstrating they have taken adequate steps to remedy improper "robo-signing" and other questionable practices.  Specifically, the Court’s directive permits Bank of America, Citibank, JPMorgan Chase Bank and Wells Fargo to resume uncontested residential foreclosures which had been effectively halted since December 2010.  Retired Appellate Division Judge Richard Williams, serving as Special Master, reported that these four institutions had made a prima facie showing that they implemented new processes to redress the problems previously identified.  His Report led to the Court’s recent ruling.

These four mortgage servicers, together with several other big banks, account for a large percentage of New Jersey's residential foreclosures.  Thus, the approximate 7-month hiatus occasioned by the Court’s prior halting of uncontested foreclosures by these servicers afforded an opportunity for New Jersey’s Office of Foreclosure to make some significant strides in reducing the long backlogs that been occurring due to the unprecedented level of residential foreclosure filings – particularly as concerns speeding up the processing of larger commercial foreclosures.  However, with the temporary halting lifted, at least as to the four major banks, it is altogether likely that the backlog in processing final foreclosure judgment applications through the Office of Foreclosure is likely to return  and perhaps even worsen over the coming months.