Brunswick Bank & Trust v. Affiliated Building Corp.

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-5225-12T2
A-1893-13T3
A-2109-13T3
BRUNSWICK BANK & TRUST,
APPROVED FOR PUBLICATION
Plaintiff-Respondent,
March 17, 2015
v.
APPELLATE DIVISION
AFFILIATED BUILDING CORP.,
Defendant-Appellant.
_________________________________
BRUNSWICK BANK & TRUST,
Plaintiff-Respondent,
v.
HELN MANAGEMENT, LLC,
Defendant-Appellant.
__________________________________
BRUNSWICK BANK & TRUST,
Plaintiff-Respondent,
v.
HELN MANAGEMENT, LLC, and AFFILIATED
BUILDING CORP.,
Defendants-Appellants.
_________________________________________________
Argued January 6, 2015 – Decided March 17, 2015
Before Judges Fisher, Nugent and Manahan.
On appeal from the Superior Court of New
Jersey, Chancery Division, Middlesex County,
Docket Nos. F-30990-10 (A-5225-12) and
F-21231-13 (A-2109-13) and Monmouth County,
Docket No. F-26278-10 (A-1893-13).
Philip R. Kaufman argued the cause for
appellants.
Anthony B. Vignuolo argued the cause for
respondent (Borrus, Goldin, Foley, Vignuolo,
Hyman & Stahl, P.C., attorneys; Mr. Vignuolo
and Anthony T. Betta, on the brief).
The opinion of the court was delivered by
FISHER, P.J.A.D.
In these three appeals of orders entered in three separate
foreclosure actions, we consider, among other things, the impact
caused by the plaintiff-lender having first sought and obtained
a money judgment in the Law Division – before seeking
foreclosure – for the purpose of determining whether plaintiff
has been fully compensated. Because we can draw no certain
conclusions from the convoluted and unsettled factual record, we
remand.
I
The record generated in these cases reveals that between
September 2007 and July 2009, plaintiff Brunswick Bank & Trust
made five construction and development loans to defendants Heln
2 A-5225-12T2
Management, LLC, and Affiliated Building Corp., that were
guaranteed by Jeffrey Miller, a principal of both entities, and
his daughter Melanie Miller. Each loan was secured by a
mortgage on one of four properties, which we will refer to as
Matthew Manor, Beacon Hill, Loren Terrace and Baldwin Street.1 A
table identifying the five loans is set forth below.2
In May 2010, plaintiff filed a complaint in the Law
Division against Heln, Affiliated, and the two guarantors, on
four of the five loans.3 On August 18, 2010, the Clerk of the
Court entered a default judgment in favor of plaintiff and
against Heln for $1,884,141.84, against Affiliated for $175,000,
1
To be more specific, Matthew Manor consists of seven lots in
East Brunswick; Beacon Hill, Loren Terrace and Baldwin Street
consist of single lots in Marlboro, East Brunswick and New
Brunswick, respectively.
2
Borrower Loan Date Loan Amount Loan
Security
Heln Sept. 18, 2007 $1,500,000 Matthew
Manor
Heln May 22, 2008 $289,900 Beacon Hill
Heln Sept. 10, 2008 $100,000 Loren
Terrace
Heln April 20, 2009 $300,000 Baldwin
Street
Affiliated July 28, 2009 $175,000 Baldwin
Street
3
The complaint did not seek relief on the $300,000 loan to
Affiliated that was secured by a mortgage on Baldwin Street.
3 A-5225-12T2
and against the guarantors for the entire amount of the
indebtedness, $2,059,141.84. The judgment also declared that
plaintiff was entitled to "post-judgment interest" and an
attorney fee.
After filing the Law Division complaint, but a few months
before default judgment was entered, plaintiff commenced three
foreclosure actions; a fourth was filed three years later.
Specifically, plaintiff filed a complaint in Monmouth County on
May 10, 2010, against Heln seeking foreclosure on Beacon Hill,
and two foreclosure complaints in Middlesex County on June 8,
2010 – one against Heln seeking foreclosure on Matthew Manor and
the other against Affiliated seeking foreclosure on Baldwin
Street. The fourth complaint was filed in Middlesex County on
June 19, 2013, against Heln and Affiliated seeking foreclosure
on Loren Terrace.
Defendants4 did not respond to the first three foreclosure
complaints, and judgments were entered foreclosing on Matthew
Manor, Beacon Hill and Baldwin Street on May 2, 2012,
September 5, 2012, and February 22, 2013; the judgments set the
4
For clarity's sake, we refer to all defendants either
individually or collectively as "defendants" even though not
every proceeding involved all defendants.
4 A-5225-12T2
redemption amounts at $1,679,400.19, $297,590.10, and
$330,777.83, respectively.5
In July 2012, after entry of the foreclosure judgment
regarding Matthew Manor, defendants applied for a stay of the
sheriff's sale scheduled for certain lots within Matthew Manor.
In his supporting certification, guarantor Jeffrey Miller
asserted that Heln had contracted to sell one lot for
$1,000,000, which would result in a $500,000 payment to
plaintiff, and that Heln had also contracted to sell another lot
for $1,735,000. In September 2012, the Chancery judge permitted
the sales to continue with respect to all the lots within
Matthew Manor except the lot for which there was an existing
contract; as to this excepted lot, the judge ordered the sale to
go forward if a closing did not occur by the end of October
2012.
Later, the judge considered defendants' application for a
stay of all further foreclosure proceedings based on the
contention that the loans were "over-collateralized." In his
written decision, the Chancery judge recognized he was empowered
to "prevent a potential double recovery or windfall to a
judgment creditor," MMU of N.Y., Inc. v. Gieser, 415 N.J. Super.
5These sums included awards of counsel fees of $7,500, $3,094.95,
and $3,434.43, respectively.
5 A-5225-12T2
37, 40 (App. Div. 2010), but he found the matter too muddled by
the other pending matters and recognized the exercise of his
power to prevent a windfall had to wait until "a full and
complete factual record [could] be established." Later, by
order entered on March 6, 2013, the Chancery judge denied a
motion to vacate or stay the pending sheriff sales but the right
of redemption was extended until March 1, 2013.6 The judge also
denied a request to consolidate the various lawsuits.
Defendants thereafter moved for an order declaring the Law
Division judgment satisfied. Defendants argued plaintiff had
received $2,517,063.01 – consisting of $1,217,063.01 in cash7 and
$1,300,000 in property – which exceeded the amount due on the
money judgment even when interest of $113,534.88, running from
August 18, 2010, to March 1, 2013, was added. On July 1, 2013,
the Chancery judge discharged8 the Law Division judgment "without
prejudice to the legal rights and position of the parties as
have been asserted or remain" in the Beacon Hill and Loren
Terrace foreclosure actions.
6
The final date for redemption is inexplicable in light of the
date of the order, but we assume the order memorialized an
earlier oral decision.
7
Defendants allege that plaintiff was paid $717,063.01 in 2011
and received another $500,000 upon sale of a Matthew Manor lot.
8
The order was entered in both the Law Division action and the
Matthew Manor foreclosure action.
6 A-5225-12T2
No appeal was filed regarding any of these orders. Those
circumstances, however, set the stage for entry of the orders
under review in these three appeals.
II
A. The first appeal. Prior to his disposition of the
motion that led to the July 1, 2013 order described above, the
Chancery judge heard argument on defendants' motion for a stay
of a sheriff's sale of Baldwin Street. A temporary stay was
granted to allow the parties to be heard on defendants'
contention that the $175,000 Baldwin Street mortgage was
subsumed within the Law Division judgment and had therefore been
satisfied and, also, with regard to defendants' assertion that
they had found a buyer for the property that would generate
$335,000, which would more than satisfy the mortgage. Plaintiff
responded that the contract price would not satisfy the amount
still owed as reflected by the foreclosure judgment. Without
conducting an evidentiary hearing to resolve this dispute, the
judge denied the motion for a stay of the sheriff's sale.
Defendants' notice of appeal in A-5225-12 seeks review of
the May 21, 2013 order that memorializes the judge's ruling.
B. The second appeal. In November 2013, defendants moved
for a stay of a sheriff's sale of Beacon Hill in the one matter
pending in another vicinage. In adhering to the approach taken
7 A-5225-12T2
in the other matters, the judge in the Beacon Hill matter denied
defendants' application by order entered on November 22, 2013,
and plaintiff purchased Beacon Hill at the sheriff's sale that
followed. Consequently, defendants filed their second appeal
(A-1893-13).
C. The third appeal. As noted earlier, plaintiff's
foreclosure complaint regarding Loren Terrace was not filed
until June 19, 2013. Defendants responded to that complaint,
asserting among other things that the underlying debt had been
satisfied and plaintiff was otherwise estopped from foreclosing
on the mortgage.
Defendants moved for dismissal, and plaintiff cross-moved
for summary judgment. On November 18, 2013, after hearing oral
argument, the Chancery judge granted plaintiff's summary
judgment motion and struck defendant's answer to the foreclosure
complaint; the order, however, also declared that its entry
"will be without prejudice to [d]efendants' right to seek
damages in the event of a reversal of this decision by the
Appellate Division." In addition, the order directed that the
case would thereafter proceed on an uncontested basis.
Defendants, however, filed their third notice of appeal (A-2109-
13) on January 2, 2014, before a final judgment could be
entered.
8 A-5225-12T2
A few months later, when the property was sold by mutual
agreement of the parties – and with defendants' payment to
plaintiff of the proceeds under protest – the judge entered an
order, declaring that "subject to the appeal of the order . . .
striking the [a]nswer of [d]efendants [] the within matter be
and hereby is dismissed with prejudice" but that "this dismissal
shall be without prejudice to the issues now on appeal." The
order additionally declared that "in the event [d]efendant[s]
shall prevail on appeal, then [their] remedy shall be limited to
money damages."9
III
Defendants present the same three arguments in all three
appeals, namely: (1) whether plaintiff, by filing suit for a
money judgment prior to seeking foreclosure, is bound by the
money judgment as to the amount due on the underlying notes; (2)
whether the mortgages were satisfied by the payment of the
underlying obligation, and (3) whether, in a commercial
transaction, mortgagors are entitled to a fair market credit for
property taken in foreclosure.
9
Our disposition of these appeals makes unnecessary our
determination of whether defendants mistakenly filed a notice of
appeal before finality was achieved in this matter in the trial
court.
9 A-5225-12T2
We commence our examination of these issues by mentioning a
few legal principles that illuminate the way. To start, a
mortgage is simply a form of "security for the payment of a
debt," J.W. Pierson Co. v. Freeman, 113 N.J. Eq. 268, 271 (E. &
A. 1933), and full payment of the underlying debt, by operation
of law, will extinguish a mortgage, Valley Nat'l Bank v. Meier,
437 N.J. Super. 401, 404-05 (App. Div. 2014), certif. denied, __
N.J. __ (2015); see also Shields v. Lozear, 34 N.J.L. 496, 503
(E. & A. 1869) (holding that a mortgage "is annihilated by the
extinguishment of the debt secured by it"). Furthermore, a
"mortgagee is not entitled to recover more than full amount of
[the] mortgage debt." 79-83 Thirteenth Ave., Ltd. v. De Marco,
79 N.J. Super. 47, 54 (Law Div. 1963), aff’d, 83 N.J. Super. 497(App. Div. 1964), aff’d, 44 N.J 525 (1965). In addition, we
have held that, even in a commercial setting, courts have
"inherent equitable authority to allow a fair market value
credit in order to prevent a double recovery by a judgment
creditor against a judgment debtor." MMU of N.Y., Inc., supra,
415 N.J. Super. at 40. In that case, the plaintiff purchased
the defendant's property at a sheriff's sale for nominal value
and then quickly sold it for approximately $1,200,000. Id. at
41. We affirmed the trial court's ruling that the defendant,
who owed the plaintiff $1,600,000 on a Law Division judgment,
10 A-5225-12T2
was entitled to a credit based on the property's fair market
value. Id. at 41-43. What these authorities illustrate is that
plaintiff was entitled only to recover the amount of its loan –
together with accruing interest and other damages permitted by
the loan agreements – and defendants were entitled to a fair
market credit for any property acquired by plaintiff in the
collection of its debt.
Of further interest is that the "foreclosure first" rule,
N.J.S.A. 2A:50-2, which acts to avoid the type of convoluted
circumstances presented here, requires that foreclosure be
sought first when collecting on a debt secured by a mortgage.
Only if the eventual disposition of the foreclosed property
fails to "bring an amount sufficient to satisfy the debt,
interest, and costs," may the lender commence an action on the
deficiency. Ibid.
Although the "foreclosure first" rule was intended to
prevent the possibility of multiple actions for the recovery of
such a debt, Light v. Granatell, 171 N.J. Super. 557, 561 (App.
Div. 1979), the Legislature created exceptions and determined –
for reasons apparently "based on efficiency and respect for
arms-length business transactions," Bus. Loan Ctr., L.L.C. v.
Nischal, 331 F. Supp. 2d 301, 309 (D.N.J. 2004) – that when the
debt is secured "for a business or commercial purpose," such as
11 A-5225-12T2
here, the lender is not obligated to foreclose first. N.J.S.A.
2A:50-2.3(a). As we have seen, plaintiff chose the alternative
route permitted by this exception, thereby convoluting the
circumstances now before us.10
In any event, as made clear by First Union Bank v. Penn
Salem Marina, 190 N.J. 342, 344-45 (2007), by fixing in the Law
Division the amount due on four of the loans, plaintiff is now
estopped from claiming a greater amount was due on the same
items of damages then adjudicated. As the First Union Court
held, "[e]xcept for amounts accruing after the first judgment
and for different categories of damages, the amount of the
judgment entered in [both the Law Division and foreclosure]
action[s] should be identical." Id. at 345.
Because of the lack of clarity in the record as to how the
application of these principles impact the parties' rights and
obligations, we remand for further proceedings. Despite the
Chancery judge's accurate comment early in these proceedings
regarding defendants' claims of "over-collateralization" and
overpayment of the debt – that "a full and complete factual
10
A further complication arises from the fact that the Law
Division action sought a money judgment on only four of the five
loans. Plaintiff's rights and remedies regarding that fifth
loan are, therefore, not capped by the Law Division judgment
except to the extent plaintiff may have already collected more
than owed on the total of all five loans as a result of its
efforts on the first four loans.
12 A-5225-12T2
record" was required – uncertainty and unresolved fact disputes
continue to plague an understanding of the parties' rights. The
parties are entitled to a consideration of these issues after
the creation of "a full and complete factual record."
We note that certain pieces of the puzzle are already in
place. First, the Law Division judgment fixed the total amount
of the principal indebtedness on four of the five loans at
$2,059,141.84, as of August 18, 2010, the date judgment was
entered; the certification submitted by plaintiff in support of
the entry of that default judgment designates – and caps – the
amount due on each of the four loans involved. That default
judgment also awarded plaintiff post-judgment interest on the
adjudicated principal, thus fixing the accrual of interest on
any unpaid portion of that judgment – for however long it
remained unpaid – at the rule-based interest rate contained in
Rule 4:42-11(a).11 Those determinations in the Law Division
precluded the awarding of additional damages on those categories
in the later Chancery Division actions. First Union Bank,
11
The judgment also found defendants liable for an "attorney
fee," but no amount was fixed. The judge should determine
whether plaintiff's failure to quantify its attorney's fees when
applying for the default judgment in the Law Division
constituted a waiver of that category of damages in the Chancery
Division matters or whether it is more equitable to permit the
later determinations in the foreclosure judgments to constitute
awards for the unspecified attorney fee permitted by the Law
Division judgment.
13 A-5225-12T2
supra, 190 N.J. at 355. On the other hand, plaintiff's right to
seek relief on the fifth loan was not so limited.
We further observe that a certification, which was filed in
support of defendants' motion to dismiss the Loren Terrace
foreclosure action, asserted that plaintiff was paid $717,063.01
"[b]etween March 30, 2011 and December 28, 2011," and another
$500,000 was paid to plaintiff on or about January 21, 2013. It
is not clear from the record whether plaintiff disputes these
payments. If so, then there must be an evidentiary hearing to
resolve that dispute; if not, then the amount due on the Law
Division judgment should have been reduced and the amount of
interest accruing on the remainder should have been adjusted
accordingly. In addition, defendants contend plaintiff received
property through sheriff's sales that would further reduce – or,
if defendants are correct as to the property's fair market
value, fully satisfy – the amount due on the judgment.
Defendants are entitled to a credit against the outstanding
indebtedness for the fair market value of the property obtained
by plaintiff. And plaintiff is entitled to recover any
reasonable sums for expenditures properly incurred but not
adjudicated by way of the Law Division action, such as – if
applicable or permitted by the loan agreements – real estate
taxes, insurance or property preservation.
14 A-5225-12T2
In short, the questions posed in these appeals cannot be
properly or clearly answered without a full accounting of the
cash and property collected by plaintiff applied against the
amount of the Law Division judgment and the interest that
accrued on that judgment, as well as expenditures in "different
categories of [permissible] damages" not adjudicated in the Law
Division action. First Union Bank, supra, 190 N.J. at 345.
Although we are unsure of the practical effect of reversing
the orders under review in A-5225-12 and A-1893-13,12 we reverse
those orders as well as the order granting summary judgment in
favor of plaintiff under review in A-2109-13. And, we remand
for further proceedings in conformity with this opinion. These
proceedings should be conducted by the Chancery judge who
presided over most of these lawsuits even though one of the
matters – that which is before us in A-1893-13 – was adjudicated
in a neighboring vicinage; to avoid inconsistent rulings or
further delay, the matter requires a global resolution by a
single judge.
Reversed and remanded. We do not retain jurisdiction.
12
Those orders denied defendants' applications for stays of
sheriff's sales that eventually went forward.
15 A-5225-12T2