OCWEN LOAN SERVICES. LLC v. MARLA WUEBBENS QUINN

• Court: New Jersey Superior Court Appellate Division
• Decided: July 10, 2017
• Docket: A-2668-14T1
• Status: Published

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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.

2 A-2668-14T3 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

3 A-2668-14T3 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

4 A-2668-14T3 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

5 A-2668-14T3 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

6 A-2668-14T3 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:

7 A-2668-14T3 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

8 A-2668-14T3 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

9 A-2668-14T3 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.

10 A-2668-14T3