Borrower Cannot Abandon Germane Defense To Foreclosure And Later Sue For Damages Based On That Defense

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

Foreclosure (PD)
It is always helpful when a court lets you know up front what its decision is all about. This was the case in Adelman v. BSI Financial Services, Inc., where the Appellate Division began its decision as follows: "A defendant in a foreclosure case may not fail to diligently pursue a germane defense and then pursue a civil case against the lender alleging fraud by foreclosure." Definitely not burying the lede (or is it burying the "lead"?).

In Adelman, plaintiff was the executrix of the estate of her deceased husband, Norman. Before they were married, Norman entered into a loan with his lender that was secured by a mortgage on his home. Three years later, the loan went into default, and six months after that, the lender filed a foreclosure complaint. Norman offered no defense to the complaint, and default was entered. Three months after that, he began discussing the possibility of a loan modification with the lender. However, Norman's chances for a successful modification ended when he could not make the first payment under the proposed modification and when a title search revealed five other liens on the property. 

Months later, final judgment of foreclosure was entered. Norman did not object to the entry of final judgment. One year after that, the property was sold at sheriff's sale, and nine months after the sale, the lender filed a motion to remove Norman from the property. Only then, for the first time, did Norman argue, in a motion to stay his removal from the property, that the foreclosure was improper because the loan modification cured the default. The court denied this motion. Plaintiff appealed but then withdrew the appeal. Ultimately, shortly after Norman passed, and more than five years after the loan went into default, plaintiff vacated the property. 

Continue reading “Borrower Cannot Abandon Germane Defense To Foreclosure And Later Sue For Damages Based On That Defense”

Winning Bidder At Sheriff’s Sale Entitled To Recoup Some, But Not All, Of His Deposit After Sale Is Vacated

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

Auction (pd)A recent decision from the Appellate Division drives home (1) the duty of sellers at sheriff's sales to announce all material information about the property being sold at the sale, (2) the duty of bidders at sheriff's sales to perform independent due diligence about the property notwithstanding that announcement, and (3) the flexibility of Chancery Division courts to fashion remedies when both fail to fully satisfy their obligations.

In Wells Fargo Bank Bank, N.A. v. Torney, plaintiff foreclosed on property owned by defendant, obtained final judgment against defendant, and proceeded to sheriff's sale. In advance of the sheriff's sale, plaintiff submitted its "sheriff's sale package" to the Camden County Sheriff. Included in the package was a short form property description (required under N.J.S.A. 2A:61-1), which, among other things, disclosed that the property was subject to a $94,000 first mortgage. The existence of this prior mortgage was also disclosed in the conditions of sale attached to the short form property description, and in the Affidavit of Consideration submitted by plaintiff in connection with the foreclosure. Finally, the short form property description also contained the following disclaimer: "all interested parties are to conduct and rely upon their own independent investigation to ascertain whether or not any outstanding interest remain[s] of record and/or have priority over the lien being foreclosed and, if so[,] the correct amount due thereon."

Edward Shuman, who would eventually be the winning bidder at the sheriff' sale,  learned about the sale through the sheriff's website, which did not mention the prior mortgage. Also, at the sheriff's sale, plaintiff did not announce, as part of its "general announcements," that the property was subject to a prior mortgage. And, on the "printed condition of sale, the box next to 'subject to a first mortgage' was not checked." Shuman claims that he did not know about the prior mortgage when he placed his winning bid on the property, and did not learn about it until later that day when he inquired about the existence of any tax liens on the property. Once he learned about the mortgage, he contacted plaintiff and requested that the sale be vacated and his deposit returned. When plaintiff refused, Shuman filed a motion seeking the same relief. 

Continue reading “Winning Bidder At Sheriff’s Sale Entitled To Recoup Some, But Not All, Of His Deposit After Sale Is Vacated”

“Get Your Priorities Straight!” Refinanced First Mortgage Maintains Priority Over Junior Liens

by:  Peter J. Gallagher (@pjsgallagher)

New Jersey is a "race-notice" jurisdiction when it comes to mortgage priority. What this means, in its simplest terms, is that if Party A obtains a mortgage on a piece of property before Party B does, but Party B records its mortgage first (i.e., it wins the "race" to the clerk's office), then Party B's mortgage has priority unless Party B had "actual knowledge" of Party A's previously-acquired interest. But what happens when a first mortgage is refinanced? The original mortgage is technically paid off and replaced with the refinanced mortgage. Does this "newly-recorded," refinanced mortgage maintain the first priority status of the original mortgage or does it go to the back of the line? The answer to this question — as discussed in a recent decision from the Law Division, Wells Fargo Bank, NA v. Kim — is that the refinanced mortgage generally takes the original mortgage's first priority position.

In Kim, defendant borrowed $328,000 from Washington Mutual Bank, FA ("WaMu") to buy a home and secured repayment of this loan with a purchase money mortgage on the home. Later, defendant obtained a home equity loan from Plaintiff, Wells Fargo Bank, N.A. ("Wells Fargo") that was also secured by a mortgage on defendant's home. Defendant then refinanced her original, purchase money mortgage with WaMu. Defendant used the entire amount of the refinance loan, which was secured by a mortgage on defendant's home, to pay off the original purchase money mortgage (i.e., she did not borrow and more money through the refinance) and the purchase money mortgage was discharged of record. WaMu did not obtain a subordination of the Wells Fargo mortgage in connection with the refinance.

Approximately three years after the refinancing, defendant defaulted on the Wells Fargo home equity loan, and Wells Fargo moved to foreclose. Defendant did not file a contesting answer and the court entered default against her. However, U.S. Bank Trust, N.A. ("U.S. Bank"), the successor to WaMu's interest in the refinance loan and mortgage, filed a contesting answer claiming that its mortgage stood in first priority position ahead of  Wells Fargo's mortgage.

Continue reading ““Get Your Priorities Straight!” Refinanced First Mortgage Maintains Priority Over Junior Liens”

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.