Brunswick Bank & Trust v. Affiliated Building Corp.

111 A.3d 710, 440 N.J. Super. 118

• Court: New Jersey Superior Court Appellate Division
• Decided: March 17, 2015
• Docket: A-5225-12 A-1893-13 A-2109-13
• Status: Published

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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. __________________________________

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.

5 These 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