Bogota Savings Bank v. David G. Federici and Valerie S. Federici

• Court: New Jersey Superior Court Appellate Division
• Decided: November 27, 2024
• Docket: A-1943-23
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-1943-23

BOGOTA SAVINGS BANK, a banking corporation of the State of New Jersey,

Plaintiff-Appellant,

v.

DAVID G. FEDERICI and VALERIE S. FEDERICI,

Defendants-Respondents. _____________________________

Argued October 29, 2024 – Decided November 27, 2024

Before Judges Gilson and Augostini.

On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. F-009364-23.

Bruce H. Dexter argued the cause for appellant (Dexter & Kilcoyne, attorneys; Bruce H. Dexter and Virginia Kilcoyne, on the briefs).

Mercedes Diego argued the cause for respondents (Cohn Lifland Pearlman Herrmann & Knopf, LLP, attorneys; Mercedes Diego and Christina Stripp, on the brief).

PER CURIAM

Plaintiff Bogota Savings Bank appeals from a January 22, 2024 1 order

dismissing its foreclosure complaint for failure to state a claim upon which relief

could be granted. We affirm.

I.

We summarize the underlying facts in the record which are not in dispute.

On May 11, 2012, plaintiff extended a home equity loan to defendants David G.

Federici and Valerie S. Federici in the amount of $134,000.00. The loan was

secured by a mortgage on their home in Ramsey, New Jersey (first mortgage).

Mr. Federici owned Floor Town, Inc. (Floor Town). The mortgage payments on

the loan were paid by Floor Town for the term of the loan.

The loan was paid in full. Upon receipt of the final mortgage payment,

plaintiff prepared and recorded a discharge of the mortgage on January 29, 2018.

On February 2, 2018, Floor Town filed a Chapter 7 bankruptcy petition.

Two years later, on January 30, 2020, the bankruptcy trustee filed an adversarial

1 The order stated the date of January 22, 2023 which is an error. The correct date of the order is January 22, 2024. A-1943-23 2 proceeding against plaintiff seeking a return of some of the mortgage payments

made by Floor Town.

During the pendency of the bankruptcy proceeding, plaintiff extended

another mortgage (second mortgage) to defendants in the amount of $97,000.00,

also secured by defendants' home. On August 10, 2022, plaintiff and the

bankruptcy trustee settled the claims by entering a consent order under which

plaintiff agreed to pay $60,000.00 in full satisfaction of all claims against it.

The following year, on August 4, 2023, plaintiff filed a foreclosure

complaint against defendants seeking to reinstate and then foreclose upon the

first mortgage that was discharged on January 29, 2018. Plaintiff also sought to

foreclose upon the second mortgage, asserting that defendants' default on the

first mortgage caused a default on the second mortgage under the second

mortgage's cross-default provision. The cross-default provision provided,

DEFAULT: The note describes the acts that will constitute a default under this mortgage. Additionally, a default under any other mortgage covering the premises will constitute a default under this mortgage. If any default occurs, you can foreclose this mortgage. That means that you can arrange for the premises to be sold, as provided by law, in order to pay off what I owe you. If the money you receive from the sale is not enough to pay off what I owe you, I still owe you the difference.

A-1943-23 3 On October 13, 2023, defendants filed a motion to dismiss the foreclosure

complaint with prejudice. Plaintiff filed a cross-motion seeking to amend the

foreclosure complaint to add a count for breach of contract.

At oral argument on December 5, 2023, the court questioned whether a

foreclosure action in the Chancery Division, rather than a case in the Law

Division, was the appropriate avenue for the relief sought. The court reasoned

that defendants' payment of the mortgage in full resulted in the discharge of the

lien on the property. Once the lien is properly discharged, as the court further

explained, evidence of the discharge constituted a valid defense to any

subsequent foreclosure action. The court noted that plaintiff had other options,

such as joining defendants to the preference action in the bankruptcy

proceedings or moving to vacate the recorded discharge. Plaintiff did not pursue

any of these other potential avenues of relief.

The court found that plaintiff sat on its rights by its delay in seeking

recourse. The court also rejected plaintiff's argument that relief was warranted

under the cross-default provision in the second mortgage. Thus, on January 22,

2024, the court issued an order dismissing plaintiff's foreclosure complaint with

prejudice. This appeal followed.

A-1943-23 4 II.

We review de novo a court's ruling on a motion to dismiss for failure to

state a claim under Rule 4:6-2(e). Watson v. N.J. Dep't of Treasury, 453 N.J.

Super. 42, 47 (App. Div. 2017) (citing Castello v. Wohler, 446 N.J. Super. 1, 14

(App Div. 2016)); see also Baskin v. P.C. Richard & Son, LLC, 246 N.J. 157,

171 (2021) (citing Dimitrakopoulos v. Borrus, Goldin, Foley, Vignuolo, Hyman

& Stahl, P.C., 237 N.J. 91, 108 (2019)). "A reviewing court must examine 'the

legal sufficiency of the facts alleged on the face of the complaint,' giving the

plaintiff the benefit of 'every reasonable inference of fact.'" Ibid. (quoting

Dimitrakopoulos, 237 N.J. at 107). A court must search the complaint

thoroughly "'and with liberality to ascertain whether the fundament of a cause

of action may be gleaned even from an obscure statement of claim, opportunity

being given to amend if necessary.'" Ibid. (quoting Printing Mart-Morristown

v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989)). "'[I]f the complaint states no

claim that supports relief, and discovery will not give rise to such a claim, the

action should be dismissed.'" Ibid. (quoting Dimitrakopoulos, 237 N.J. at 107).

A motion to dismiss under Rule 4:6-2(e) is limited to "the pleadings

themselves." Dimitrakopoulos, 237 N.J. at 107 (quoting Roa v. Roa, 200 N.J.

555, 562 (2010)).

A-1943-23 5 "[A] dismissal with prejudice is 'mandated where the factual allegations

are palpably insufficient to support a claim upon which relief can be granted,' or

if 'discovery will not give rise to such a claim.'" Mac Prop. Grp. LLC & The

Cake Boutique LLC v. Selective Fire & Cas. Ins. Co., 473 N.J. Super. 1, 17

(App. Div. 2022) (citations omitted), cert. denied sub nom. MAC Prop. Grp.

LLC v. Selective Fire & Cas. Ins. Co., 252 N.J. 258 (2022), and cert. denied sub

nom. MAC Prop. Grp. LLC – The Cake Boutique LLC v. Selective Fire & Cas.

Ins. Co., 252 N.J. 261 (2022).

Plaintiff alleges the court erred in three ways: (1) in finding that it

lacked standing; (2) in dismissing its complaint with prejudice; and (3) by

finding that plaintiff was required to join defendants in the bankruptcy court

preference action. Using the applicable standard, we review the dismissal of

plaintiff's claims.

A. Standing.

The court concluded that plaintiff lacked standing to bring a foreclosure

complaint against defendants because the underlying debt had been fully

satisfied and the mortgage was properly discharged. The court further held that

the evidence of the discharge constituted a valid defense to any subsequent

foreclosure action. We agree with the court's conclusions in this regard.

A-1943-23 6 "'As a general proposition, a party seeking to foreclose a mortgage must

own or control the underlying debt.'" Wells Fargo Bank, N.A. v. Ford, 418 N.J.

Super. 592, 597 (App. Div. 2011) (quoting Bank of N.Y. v. Raftogianis, 418

N.J. Super. 323, 327-28 (Ch. Div. 2010)). "In the absence of a showing of such

ownership or control, [a] plaintiff lacks standing to proceed with the foreclosure

action and the complaint must be dismissed." Ibid. Ownership or control of a

mortgage note is established when an entity is: "(1) the holder of the instrument,

(2) a nonholder in possession of the instrument who has the rights of the holder,

or (3) a person not in possession of the instrument who is entitled to enforce the

instrument pursuant to [N.J.S.A.] 12A:3-309 or subsection (d) of [N.J.S.A.]

12A:3-418." Ibid. (quoting N.J.S.A. 12A:3-301).

Plaintiff fails to satisfy any of the three criteria to establish ownership or

control of the mortgage note because it was cancelled in 2018. Plaintiff is

attempting to revive the former lien on defendant's property that had been

discharged due to satisfaction of the lien. Plaintiff has not established any basis

under the law to reinstate the mortgage.

B. Dismissal of Foreclosure Complaint.

Plaintiff contends the central issue in this case is whether a mortgage that

has been cancelled under mistaken belief that it was paid in full should be

A-1943-23 7 reinstated. Generally, once a mortgage is discharged, it cannot be revived. Atl.

Seaboard Co. v. Borough of Seaside Park, 36 N.J. Super. 142, 154 (App. Div.

1955). "A revival of a mortgage once paid is tantamount to executing a new

mortgage, and once satisfied, a mortgage may not be revived without the

authorization of the obligor . . . . " McCarthy v. Schwalje, 234 N.J. Super. 396,

399 (Ch. Div. 1988) (citing First Federal v. Fink, 99 N.J. Super. 76 (Ch. Div.

1968)). There are limited exceptions to this principle. Plaintiff argues that one

of these limited exceptions, namely, mistake, justifies reinstating the mortgage

in this case.

However, the mortgage on defendants' property was properly discharged

upon full payment of the loan. It was not discharged believing it had been paid

in full, when it had not. Plaintiff's voluntary decision to settle the preference

action and remit the sum of $60,000.00 to the bankruptcy trustee occurred more

than four years after the mortgage had been fully satisfied. Thus, no error had

occurred causing the mistaken discharge of the mortgage. Instead, the record

establishes that plaintiff correctly discharged the mortgage because the

underlying loan had been paid in full.

Plaintiff cites to Dudley v. Bergen, 23 N.J. Eq. 397, 400 (Ch. 1873) in

support of the court's authority to revive a lien on property. However, the court's

A-1943-23 8 authority to revive a mortgage is limited to those situations where the

cancellation "is procured by fraud, or made by mistake, or without authority,

and without actual payment and satisfaction . . . ." Ibid. In this instance,

cancellation of the mortgage did not occur under any of these limited

circumstances. There was no evidence of fraud or illegality involved with the

discharge of this mortgage. Nor does plaintiff contend it was without authority

to discharge the mortgage in 2018. The mortgage was discharged because

plaintiff received all payments due in full satisfaction of the debt. Based upon

our de novo review, there is no evidence of mistake, fraud or lack of authority

upon which to reinstate the first mortgage.

C. Equitable Claims.

Plaintiff asserts the court failed to consider its claims for equitable

estoppel and unjust enrichment. Plaintiff argues that defendant's conduct in

using Floor Town funds to make the monthly mortgage payments misled

plaintiff into believing the note was paid in full, and plaintiff, to its detriment,

relied on those payments. This argument is without merit.

Equitable estoppel may form a basis for relief when there is "conduct,

either express or implied, which reasonably misleads another to his prejudice so

A-1943-23 9 that a repudiation of such conduct would be unjust in the eyes of the law." Segal

v. Lynch, 211 N.J. 230, 254 (2012) (citations omitted).

Plaintiff received monthly payments from Floor Town and accepted those

payments to pay down the debt. Not only did plaintiff accept these funds from

Floor Town, but while the bankruptcy proceeding was pending, plaintiff

extended a second mortgage to defendants. Plaintiff was not misled by this

conduct and provides no facts to support this argument.

Relatedly, "[t]o establish unjust enrichment, a plaintiff must show both

that defendant received a benefit and that retention of that benefit without

payment would be unjust." VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 554

(1994) (internal citations omitted). Defendants were not unjustly enriched.

Defendants received the loan from plaintiff and the loan was repaid.

Moreover, "[t]he doctrine of laches 'is invoked to deny a party

enforcement of a known right when the party engages in an inexcusable and

unexplained delay in exercising that right to the prejudice of the other party.'"

U.S. v. Scurry, 193 N.J. 492, 503 (2008) (citing Knorr v. Smeal, 178 N.J. 169,

180-81 (2003)). Laches has been defined as an "unexplainable and inexcusable

delay in enforcing a known right whereby prejudice has resulted to the other

party because of such delay." County of Morris v. Fauver, 153 N.J. 80, 105

A-1943-23 10 (1998) (quoting Dorchester Manor v. Borough of New Milford, 287 N.J. Super.

163, 171 (App. Div. 1994)).

As the trial court aptly noted, the first mortgage was discharged over five

years ago; the preference action was filed approximately four years ago and

settled over two years ago; and during the preference litigation, approximately

two years ago, plaintiff issued defendants a new, unrelated mortgage. Plaintiff

offered no explanation as to why it "sat on its rights."

Based on our de novo review, these equitable claims are without merit,

and moreover, the doctrine of laches justifies barring these claims. Furthermore,

without standing to pursue a foreclosure complaint, these claims would not

survive a motion to dismiss.

D. Plaintiff's Cross-collateralization Claim.

Plaintiff's cross-collateralization or cross-default claim rests on the terms

of the second mortgage, which provides "a default under any other mortgage

covering the premises will constitute a default under this mortgage." Plaintiff

argues that a default under the first mortgage constitutes a default under the

second mortgage. However, because the first mortgage was fully satisfied and

discharged by plaintiff, this cross-collateralization provision is inapplicable.

A-1943-23 11 Thus, the court properly concluded that cross-collateralization could not

have occurred because the first mortgage had already been discharged.

Moreover, the court also correctly noted that the second mortgage does not

mention or incorporate the first mortgage and cannot provide plaintiff standing.

E. Bankruptcy Court Preference Action.

Plaintiff next contends the court erred in finding it was plaintiff's

responsibility to join defendants in the bankruptcy preference action. Plaintiff

argues that as a matter of law, the bankruptcy court did not have subject matter

jurisdiction and therefore could not address the claims between plaintiff and

defendants. We need not address this issue because whatever could or might

have happened in the bankruptcy court did not give plaintiff grounds to reinstate

the discharged mortgage.

F. Plaintiff's Motion to Amend the Complaint.

Plaintiff asserts the court erred in not permitting it to amend its complaint

to add a breach of contract claim. The court denied this request as futile after it

dismissed plaintiff's foreclosure complaint for lack of standing.

We recognize that motions to amend a complaint prior to a responsive

pleading being filed should be liberally granted. R. 4:9-1. Nonetheless, "the

analysis is not complete until the requested amendment is examined to determine

A-1943-23 12 whether it is futile" and "not sustainable as a matter of law." Notte v. Merchs.

Mut. Ins. Co., 185 N.J. 490, 501 (2006) (quoting Interchange State Bank v.

Rinaldi, 303 N.J. Super. 239, 256-57 (App. Div. 1997)). Consistent with the

Court's decision in Notte, the court here properly concluded that there would be

no point to permitting the amendment when the amended pleading in total would

be dismissed for lack of standing. Ibid. Thus, we discern no error in the court's

denial of the amendment.

To the extent we have not addressed any of plaintiff's remaining

arguments, we deem them to be without sufficient merit to warrant discussion

in a written opinion. R. 2:11-3(e)(1)(E).

Affirmed.

A-1943-23 13