(I Swear This Is Not A Boring Post About) Foreclosures And Statutes Of Limitations

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

Mortgage (pd)Although foreclosures have not been in the news as much lately as they were several months ago, New Jersey courts still issue at least one or two decisions per week involving residential foreclosures. While I have written about some of the more interesting ones in the past (here, here, and here), most now follow a familiar pattern – final judgment is entered against a borrower, the borrower moves to vacate the judgment arguing that the lender lacks standing, and (almost always) the court finds that the lender had standing and denies the motion. Every now and again, however, a court addresses an interesting issue worth writing about. The Law Division's decision in Deutsche Bank National Trust Company v. Hochmeyer is one of these cases.

In Hochmeyer, defendant entered into a mortgage with a maturity date of June 1, 2036 that was recorded on October 25, 2007. Defendant defaulted on December 1, 2006. Remember these dates. They will be important later on.

Under New Jersey law, a lawsuit to foreclose on a residential mortgage must be brought before the later of (1) six years from the date when the last payment is made or "the maturity date set forth in the mortgage," OR (2) thirty six years from the date the mortgage was recorded, OR (3) twenty years from the date of default. In other words, every foreclosure lawsuit has three potential end dates for the statute of limitations, but only the earliest one counts. 

In Hochmeyer, the parties agreed that calculating the limitations period using the second or third options would yield dates many years in the future — thirty six years from the date the mortgage was recorded would be October 25, 2043, and twenty years from the date of default would be December 1, 2026. They disagreed, however, over the calculation under the first option. The difference was important because, under defendant's approach, the date not only would have been the earliest one, and thus the operative one, but it would have expired before the complaint was filed rendering the complaint untimely. Plaintiff obviously disagreed with defendant's approach. For the reasons set forth below, the court sided with plaintiff.

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NJ Supreme Court Keeps Its Priorities Straight: A Later-Filed Mortgage Can Have Priority Over An Earlier-Filed One

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

Monopoly houses (pd)If you are like me, nothing piques your interest more than a case about the priority of liens and mortgages. I am joking of course. I am not (quite) that boring. But, there are occasionally cases that come along on seemingly dry issues that are nonetheless interesting. The New Jersey Supreme Court's decision in Rosenthal & Rosenthal, Inc. v. Benun is one of those cases. I wrote about the Appellate Division's decision in Rosenthal here, and now the Supreme Court has issued its own opinion, affirming the Appellate Division's judgment.

In Rosenthal, plaintiff was a factoring company (factoring is the sale of accounts receivable at a discount price).  It entered into two factoring agreements with several entities owned by Jack Benun and his family (the "Benun Companies"). Each of the factoring agreements was personally guaranteed by defendant, Vanessa Benun, Jack Benun's daughter, and each of her personal guarantees was secured by a mortgage on property she owned in Ocean Township.  These mortgages were recorded in 2000 and 2005 respectively. Each mortgage contained both a "dragnet clause" — a provision stating that if the borrower ever becomes liable to the lender on any other loan, the mortgage will also secure that loan — and an anti-subordination clause.

In 2007, after both of the above mortgages were recorded, Ms. Benun gave the law firm Riker Danzig a mortgage on the same property in Ocean Township that secured her personal guarantees on the two factoring agreements. The purpose of this mortgage was to secure payment of almost $1.7 million owed to Riker Danzig by Mr. Benun at that time. After the mortgage was recorded, plaintiff's counsel sent an email to Riker Danzig acknowledging the Riker Danzig mortgage. More importantly, plaintiff also continued to make disbursements to the Benun Companies under the factoring agreements after the Riker Danzig mortgage was recorded and acknowledged by plaintiff.

 

Continue reading “NJ Supreme Court Keeps Its Priorities Straight: A Later-Filed Mortgage Can Have Priority Over An Earlier-Filed One”

Just In Time For Finals: Court Poses, Then Answers, Law School Exam Question On Fraudulent Conveyances

Money
In Motorworld, Inc. v. Benkendorf, the Appellate Division decided to "put the issue raised in [the] appeal as if it were a law school exam," and then answer the exam question. Here is how it described the case:

A owns all the outstanding stock of DEF and GHI; her husband, B, operates all these and other entities wholly-owned by A. XYZ has done work for some of A and B's entities over the course of many years.

One of XYZ's principals asked B for a loan. B agreed, and A transferred $499,000 to DEF, a moribund entity. DEF then transferred $500,000 to XYZ, which executed a promissory note in DEF's favor; this note became DEF's only asset and its only debt is its unspoken obligation to repay A.

XYZ continued to perform work for GHI, and the note's due date was repeatedly extended; meanwhile, GHI's indebtedness to XYZ rose to approximately $1,000,000. Consequently, DEF executed a release of the note in exchange for XYZ's forgiveness of GHI's debt.

Was DEF's release of the note a fraudulent conveyance?

Believe it or not, this description was actually less complicated than the facts of the case.

 

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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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High Priority: Sometimes A Later-Filed Mortgage Can Have Priority Over An Earlier-Filed One

by:  Peter J. Gallagher (@pjsgallagher)

Another day, another post about mortgage priority. Last week, I posted about how refinancing a first mortgage impacts its priority — click here if you don't remember — and now comes an even more interesting, and more unique, case about mortgage priorities. 

In Rosenthal & Rosenthal, Inc. v. Benun, plaintiff was a factoring company (factoring is the sale of accounts receivable at a discount price).  It entered into two factoring agreements with several entities owned by Jack Benun and his family (the "Benun Companies"). Each of the factoring agreements was personally guaranteed by defendant, Vanessa Benun, Jack Benun's daughter, and each of her personal guarantees was secured by a mortgage on property she owned in Ocean Township.  These mortgages were recorded in 2000 and 2005 respectively. Each mortgage contained both a "dragnet clause" — a provision stating that if the borrower ever becomes liable to the lender on any other loan, the mortgage will also secure that loan — and an anti-subordination clause.

In 2007, after both of the above mortgages were recorded, Ms. Benun gave the law firm Riker Danzig a mortgage on the same property in Ocean Township that secured her personal guarantees on the two factoring agreements. The purpose of this mortgage was to secure payment of almost $1.7 million owed to Riker Danzig by Mr. Benun at that time. After the mortgage was recorded, plaintiff's counsel sent an email to Riker Danzig acknowledging the Riker Danzig mortgage. More importantly for the purpose of the Appellate Division;s decision, plaintiff also continued to make disbursements to the Benun Companies under the factoring agreements after the Riker Danzig mortgage was recorded and acknowledged by plaintiff.

 

Continue reading “High Priority: Sometimes A Later-Filed Mortgage Can Have Priority Over An Earlier-Filed One”