After You Break Up, Dont Expect To Get Paid For Those Home Repairs You Did For Your Girlfriend While You Were Dating

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

Nothing says romance like asking your girlfriend to sign a contract before you agree to help her fix up her house. Nonetheless, this is essentially the take-home message from the Appellate Division's decidedly unromantic decision in Sukenik v. Dizik.

In Sukenik, plaintiff and defendant dated for approximately 18 months. "Beginning in January 2014, they spent every weekend and holiday together, with plaintiff frequently staying overnight in defendant's home." Eventually, plaintiff moved into defendant's home.

Plaintiff claimed that while he and defendant were dating, he "spent substantial sums not only on mutual expenses such as vacations and dinners, but also on needed improvements to defendant's home and property because the home was in poor condition." He testified that he spent more than $8,000 on materials. He also "contributed his labor, which he valued at $3,000." Unfortunately for plaintiff, "the relationship ended shortly after he underwent kidney surgery on June 18, 2015, when defendant demanded he move out of her home." Two weeks later, plaintiff sued, seeking to recoup the costs of the materials and labor he contributed to the repairs on defendant's home. Defendant denied liability, arguing that the improvements plaintiff made to her home were unconditional gifts.

Plaintiff was the only witness to testify at trial. After his testimony, defendant moved for involuntary dismissal. The trial court granted the motion, and plaintiff appealed.

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“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.

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When, If Ever, Is A Residential Mortgage Not “Residential” For The Purpose of Foreclosure?

by: Peter J. Gallagher (@pjsgallagher)

Believe it or not, this question comes up from time to time in my practice (exciting life, I know). In recent years I have prosecuted many foreclosure actions, but only commercial foreclosures. So the first question I usually ask a colleague who comes to me with a foreclosure question is: "Is it a commercial or residential property?" When the answer starts with something like, "Well, that is actually an interesting question . . . " then I can almost guess what is coming next. Usually it is some variation of: "It is a home, but they mortgaged it to get money to start a commercial enterprise, so I want to argue that its commercial property." Unfortunately, you usually can't make that argument (at least not successfully), and the Appellate Division's recent decision in City National Bank of New Jersey v. Hodge reminded us all of that fact again.

To begin with, the differences between commercial and residential foreclosures in New Jersey are significant. Most importantly, commercial foreclosures are not subject to the Fair Foreclosure Act, including the various notice requirements that are required for residential foreclosures under the Act. Simply put, New Jersey law provides greater protections for residential owners who are about to lose their homes than they do for commercial owners who are about to lose their place of business. This means that the burdens on lenders seeking to foreclose on a residential mortgage are more demanding, if not entirely onerous.

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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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