OCWEN LOAN SERVICES. LLC v. MARLA WUEBBENS QUINN ( 2017 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2668-14T3
OCWEN LOAN SERVICES, LLC,
Plaintiff-Respondent,
v.
MARLA WUEBBENS QUINN and
THOMAS QUINN,
Defendants,
and APPROVED FOR PUBLICATION
LOUISA WUEBBENS and JULY 10, 2017
DAVID WUEBBENS,
APPELLATE DIVISION
Defendants-Appellants.
Argued October 6, 2016 – Decided October 24, 2016
Before Judges Fuentes, Carroll, and Gooden
Brown.
On appeal from the Superior Court of New
Jersey, Chancery Division, Passaic County,
Docket No. F-27321-09.
Richard A. Herman argued the cause for
appellants.
Rajan Patel argued the cause for respondent
(Law Office of Rajan Patel and Blank Rome LLP,
attorneys; Mr. Patel, on the brief).
The opinion of the court was delivered by
CARROLL, J.A.D.
Defendants Louisa Wuebbens and David Wuebbens appeal from
companion orders entered by the Chancery Division on January 5,
2015, granting partial summary judgment to plaintiff Ocwen Loan
Servicing, LLC,1 and denying defendants' motion for summary
judgment. Applying equitable principles recognized by this court
in Sovereign Bank v. Gillis, 432 N.J. Super. 36 (App. Div. 2013),
Judge Margaret Mary McVeigh granted plaintiff's mortgage a lien
priority over defendants' life estates in the mortgaged property.
We affirm both orders, substantially for the reasons articulated
by Judge McVeigh in her well-reasoned written opinion of January
5, 2015.
The essential facts are undisputed. By deed dated November
12, 2004, defendants conveyed their residential property in Little
Falls to their daughter, Marla Wuebbens Quinn. Defendants retained
a life estate in the property, and agreed to remain responsible
for the maintenance and upkeep of the property, to pay all taxes
assessed upon the property, and to maintain adequate insurance.
On December 2, 2005, Marla Wuebbens Quinn, her husband, Thomas
Francis Quinn, and defendants executed a $260,000 mortgage on the
1
Ocwen Loan Servicing, LLC is at times alternatively referred to
as Ocwen Loan Services, LLC in some of the pleadings.
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property in favor of IndyMac Bank, F.S.B. (the 2005 mortgage).
The mortgage loan had a thirty-year term through December 2035,
with an adjustable interest rate initially set at 1.000% and a
maximum cap not to exceed 9.700%. The mortgage further provided
that, because the borrowers were initially only making limited
monthly payments, the addition of unpaid interest could increase
the principal balance to 110% of the $260,000 loan amount, or
$286,000.
On September 21, 2007, Marla Wuebbens Quinn refinanced the
existing mortgage loan by executing a $380,000 note and mortgage
in favor of IndyMac (the 2007 mortgage). Plaintiff alleges, and
defendants do not dispute, that the title commitment obtained by
IndyMac did not disclose the recorded life estates held by
defendants. Consequently, the title commitment did not require
defendants to execute the 2007 mortgage, and they did not do so.
The new mortgage loan had a thirty-year term, through October
2037, and provided for a fixed annual interest rate of 6.625%.
Indymac's title commitment did reveal the existence of two
open mortgages encumbering the property: its own 2005 mortgage,
and a $60,000 second mortgage executed by the Quinns in 2006 in
favor of another lender. Both mortgages were satisfied out of the
proceeds of the 2007 mortgage loan, with Indymac receiving
$265,269.45 to satisfy the 2005 mortgage, and the second lender
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receiving $57,305.59 to discharge its mortgage. As a result, the
2007 mortgage to Indymac, signed only by Marla Wuebbens Quinn and
not by defendants, became the sole mortgage lien on the property.
In May 2009, IndyMac filed a foreclosure action in the
Chancery Division against the Quinns on the defaulted 2007
mortgage. Subsequent amendments to the complaint by IndyMac's
assignees added defendants as parties to the action and, among
other things, sought to equitably subrogate defendants' life
estate interests in the property to plaintiff's mortgage.
On cross-motions for summary judgment, plaintiff sought an
adjudication that defendants' life estates in the property were
subject and subordinate to the lien of plaintiff's 2007 mortgage,
plus taxes and insurance advanced by plaintiff and its predecessors
while the loan was in default. In turn, defendants sought
dismissal of the foreclosure complaint against them on the grounds
that they did not sign the 2007 mortgage nor pledge their life
estates in connection with the 2007 loan refinancing.
Applying the "equitable principles of Gillis" and the
principles of replacement and modification recognized in the
Restatement (Third) of Property – Mortgages (1997) ("the Third
Restatement"), Judge McVeigh granted plaintiff's motion and denied
defendants' motion. Specifically, the judge permitted plaintiff
to step into the shoes of its prior mortgage which its own funds
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satisfied. However, the judge "capped" the amount of plaintiff's
priority at $260,000, and ruled that "[t]o the extent that the
[2007] refinance exceeds the value of the [2005] mortgage, such a
portion of the refinance does not maintain priority" over
defendants' life estates.
Judge McVeigh rejected defendants' argument that a life
estate is a prior property interest that is not subject to
principles of equitable subrogation. The judge reasoned:
A life estate has recognizable value.
See U.S.C.A. §1396p(c)(1)(J) (referring to the
purchase of a life estate as an asset). The
same equitable princip[les] that allow one
mortgage to take the place of another in
priority are applicable when deciding priority
between a life estate and the mortgage. Just
as equity is concerned with the prejudice to
the lenders of mortgages, here too we look at
the prejudice to the parties.
[Defendants] signed a mortgage in the
amount of $260,000 as possessors of a life
estate. While [defendants] may have signed
the mortgage as an act of kindness and love
to their daughter, the fact remains
[defendants] were parties to the 2005 mortgage
and thus subjected their life estate to this
foreclosure action. This [c]ourt sees no
procedural or substantive defect which would
challenge the validity of the 2005 mortgage.
At the time Marla Wuebbens Quinn signed
the refinance with IndyMac, $265,269.45 was
used to pay down the original $260,000
mortgage. [Defendants] are not prejudiced by
having the refinanced mortgage take the place
of the original mortgage, as they acknowledged
that note and mortgage. Enforcing the
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refinanced mortgage against [defendants] puts
them in the same position they were in as
signers of the original mortgage. The life
estates of [defendants] are subject to the
refinance because of their participation in
the signing of the original mortgage.
Additionally, the judge determined that defendants' life
estates in the property were subject and subordinate to an
additional $43,019.85 in taxes and insurance advanced by the
various lenders in accordance with the terms of the mortgage
documents. This appeal followed.
Our scope of review is limited. Decisions as to the
application of an equitable doctrine are left to the sound
discretion of the trial judge, and we will not substitute our
judgment for that of the trial judge in the absence of a clear
abuse of discretion. Kurzke v. Nissan Motor Corp. in U.S.A., 164
N.J. 159, 165 (2000).
On appeal, defendants argue that the trial court erred in
subordinating their life estates to plaintiff's mortgage lien,
thus allowing for the foreclosure of their life estates.
Alternatively, they argue that the trial court erred in not
conducting a hearing on the validity of the 2005 mortgage. We
disagree. We have considered defendants' arguments and find them
without merit. R. 2:11-3(e)(1)(E). We affirm substantially for
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the reasons expressed in Judge McVeigh's cogent written opinion.
We add the following comments.
Under the doctrine of equitable subrogation, "[a] refinancing
lender whose security turns out to be defective is subrogated by
equitable assignment 'to the position of the lender whose lien is
discharged by the proceeds of the later loan, there being no
prejudice to or justified reliance by a party in adverse
interest.'" Equity Sav. and Loan Ass'n v. Chicago Title Ins. Co.,
190 N.J. Super. 340, 342 (App. Div. 1983) (quoting Kaplan v.
Walker, 164 N.J. Super. 130, 138 (App. Div. 1978)). Equitable
subrogation is a remedy "'highly favored in the law.'" First Fid.
Bank, Nat. Ass'n, S. v. Travelers Mortg. Servs., Inc., 300 N.J.
Super. 559, 564 (App. Div. 1997) (internal citations omitted). As
it is an equitable doctrine, it is applied only in the exercise
of the court's equitable discretion. Metrobank for Sav., FSB v.
Nat'l Cmty. Bank, 262 N.J. Super. 133, 144 (App. Div. 1993).
Hence, "[e]quitable subrogation may only be imposed 'if the cause
is just and enforcement is consonant with right and justice.'"
Feigenbaum v. Guaracini, 402 N.J. Super. 7, 20 (App. Div. 2008)
(quoting Standard Acc. Ins. Co. v. Pellechia, 15 N.J. 162, 173
(1954)).
In the context of mortgages, we have previously described the
equitable subrogation doctrine as follows:
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Generally, a new mortgage is subrogated to the
priority rights of an old mortgage by either
agreement or assignment. In the absence of
such an agreement or assignment, a mortgagee
who accepts a mortgage whose proceeds are used
to pay off an older mortgage is equitably
subrogated to the extent of the loan so long
as the new mortgagee lacks knowledge of the
other encumbrances. Metrobank[, supra, 262
N.J. Super. at 143-44]. In that situation,
the new mortgagee by virtue of its subrogated
status can enjoy the priority afforded the old
mortgage. Ibid. Equitable subrogation may
still be afforded even though lack of
knowledge on the part of the new mortgagee
occurs as a result of negligence. Kaplan[,
supra, 164 N.J. Super. at 138]. On the other
hand, the new lender is not entitled to
subrogation, absent an agreement or formal
assignment, if it possesses actual knowledge
of the prior encumbrance. Metrobank, supra,262 N.J. Super. at 143-44.
[First Union Nat'l Bank v. Nelkin, 354 N.J.
Super. 557, 565-66 (App. Div. 2002).]
In Gillis, we relied on principles of "replacement" and
"modification" that are technically distinguishable from the
traditional application of equitable subrogation. Gillis, supra,
432 N.J. Super. at 46-49. There, we determined that, if a lender
who holds a priority lien replaces it with a new mortgage via a
refinancing, this replacement lien is given priority regardless
of the lender's knowledge of other encumbrances. Id. at 47.
Adopting "the Third Restatement's alternative approach, [we
determined that] the pertinent limiting factor is not the new
lender's knowledge, but instead whether there has been 'material
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prejudice' to the intervening lienor." Ibid. (citing Third
Restatement at § 7.6(b)(4)). Accordingly, we noted:
We regard this as a sound approach. A
proper judicial analysis of material prejudice
will examine such aspects as the respective
loan amounts involved, the interest rates,
and, potentially, the loan terms. Actual or
constructive knowledge by the refinancing
lender, if it is the same original lender or
it's corporate successor, should be
irrelevant.
[Id. at 51 (footnote omitted).]
In the present case, defendants' interest in the property
takes the form of a life estate rather than a mortgage. Like
Judge McVeigh, we do not view this as a meaningful distinction.
Rather, we view Judge McVeigh's analysis, which centered on the
presence or absence of material prejudice to defendants, as a
logical extension of our holding in Gillis. We conclude, like
Judge McVeigh, that the replacement of the 2005 mortgage lien with
the 2007 mortgage did not prejudice defendants in any meaningful
way. It is without doubt that defendants agreed to subordinate
their life estate to the lien of plaintiff's 2005 mortgage. The
trial court correctly "capped" plaintiff's mortgage priority at
$260,000, and preserved the priority of defendants' life estates
on the portion of the 2007 mortgage loan that exceeded that amount.
Although capped at $260,000, the lien of plaintiff's 2005 mortgage
over time could have risen to $286,000, and its interest rate
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could have swelled to 9.700%. In contrast, the 2007 mortgage had
a fixed interest rate of 6.625%, and extended the maturity rate
an additional two years. As a result, we concur with Judge McVeigh
that enforcing the 2007 mortgage against defendants puts them in
the same position they were in as when they signed the 2005
mortgage.
Affirmed.
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