79-83 Thirteenth Ave., Limited v. De Marco

• Decision Date: 05 April 1963
• Docket Number: No. L--5458,L--5458
• Citation: 190 A.2d 391,79 N.J.Super. 47
• Parties: 79--83 THIRTEENTH AVE., LTD., a limited partnership corporation of New Jersey, Plaintiff, v. Teresa DE MARCO, Joseph De Marco, Louis De Marco and Doris De Marco, Defendants. . Law Division
• Court: New Jersey Superior Court

Page 47

79 N.J.Super. 47

190 A.2d 391

79--83 THIRTEENTH AVE., LTD., a limited partnership corporation of New Jersey, Plaintiff, v. Teresa DE MARCO, Joseph De Marco, Louis De Marco and Doris

De Marco, Defendants.

No. L--5458.

Superior Court of New Jersey.

Law Division.

April 5, 1963.

Ronald G. Targan, Newark, for plaintiff.

Frank Metro, Newark, for defendants.

CONKLIN, J.S.C.

This is a motion for summary judgment by the plaintiff, 79--83 Thirteenth Avenue, Ltd., seeking a judgment for deficiency on a promissory note after foreclosure of a mortgage which secured the note. The court is not concerned with the validity of the note but rather whether the defendants are entitled to have the amount owing on the note reduced by the 'fair market value' or 'fair value' of the premises. In July 1958 defendants signed a promissory note secured by a mortgage on the premises known as 39 Stone Street, Newark, New Jersey. Pursuant to a final judgment the plaintiff foreclosed on the mortgage. At the sheriff's sale mortgagee plaintiff purchased the encumbered property for $11,000. The amount owing on the note prior to the foreclosure was in excess of $18,000. The defendants deny that plaintiff had at any time made a demand for payment or that plaintiff had stated the amount of the alleged deficiency prior to the institution of the suit.

Defendants contend that the fair market value of the property involved at the time of the foreclosure sale was in excess of $20,000, and therefore no deficiency exists, since the property value exceeds the total amount of the debt, accrued interest, tax costs and sheriff's fee. By way of affidavit defendants indicate that the bidding was not competitive, inasmuch as there were only two active bidders--the plaintiff and a person referred to as a 'professional bidder.' There is no dispute as to the validity or execution of the note in the present proceeding.

The defendants argue that the plaintiff, noteholder-mortgagee, should be charged with the 'fair market value' of the premises foreclosed and that the plaintiff is bound by the provisions of N.J.S. 2A:50--1 to 2A:50--51, N.J.S.A., more specifically, N.J.S. 2A:50--3, N.J.S.A. It is the contention of the defendants that if the mortgagee-noteholder institutes a foreclosure proceeding prior to bringing an action on a note, the mortgagee is bound by the statute which provides for a hearing to determine the fair market value of the property.

There is no contention of a bond being executed in this case. The plaintiff argues that the provisions of N.J.S. 2A:50--1 et seq., N.J.S.A., do not apply and the statute does not control a note secured by a mortgage, and further, the sale price is conclusive of the value of the mortgaged premises for purposes of a deficiency judgment. Plaintiff further contends that the foreclosure sale was open, that the bidding was competitive, and that the defendants had every opportunity to protect their interest at the sheriff's sale; therefore, the defendants cannot at this time press a lack of fair value defense to the resulting deficiency.

The above statute is expressly concerned with foreclosure and actions on mortgage and bonds. Nowhere in the act is any provision made for mortgages securing notes, and, apparently, the statute has deliberately been limited in scope to bonds and mortgages. See Eisenberg & Spicer, 'Mortgage Deficiencies in New Jersey,' 3 Mercer Beasley L.Rev. 27, 28--29 (1934).

Generally, the provisions of the act have been held applicable to only bonds and mortgages for the same indebtedness and not to notes. Asbury Park & Ocean Grove Bank v. Giordano, 3 N.J.Misc. 555, 129 A. 202 (Sup.Ct.1925), affirmed per curiam 103 N.J.L. 171, 134 A. 915 (E. & A. 1926), is authority for the proposition that a holder of a note and mortgage need not foreclose prior to the institution of an action on the note. See also Chodosh v. Schlesinger, 119 N.J.L. 405, 196 A. 731 (E. & A. 1938). Although the case precedent is limited to holding that foreclosure is not necessary prior to proceeding on a note, the general approach seems to be that 'these statutes do not apply where the obligation secured by the mortgage is a note.' Silver v. Williams, 72 N.J.Super. 564, 568, 178 A.2d 649, 651 (App.Div.1962). Where the obligation is 'in the form of a note, he (mortgagee) was free to proceed to recover upon and collect the obligation free from the restrictions and inhibitions of the statutes cited.' Ibid.

As pointed out by Eisenberg & Spicer, supra, 3 Mercer Beasley L.Rev., at p. 34, the law courts have followed a policy of liberal interpretation of the statute in question, the important inquiry being whether the action is being brought to enforce the Same debt for which a bond and mortgage have been given. See Wildwood Title & Trust Co. v. Geisenhorner, 11 N.J.Misc. 871, 168 A. 751 (Sup.Ct.1933). 'The form and nature of the action is immaterial if, in reality, it is a proceeding to collect the same debt for which a bond and mortgage have been given. * * * A note is quite a different obligation from a bond, and is not comprehended by the terms of the statute.' Id., 11 N.J.Misc. at p. 875, 168 A. at p. 753. In the more than 80 years since the statutory scheme first took shape, the concern of the act has been with bond and mortgage transactions.

'Legislation which ignores * * * the problem presented by mortgages securing notes is incomplete and paves the way for future problems and difficulties. The practise of lending money upon bond and mortgage will disappear, except where made mandatory by statute. Those factors and considerations which impelled the Legislature to enact the 1880 Mortgage Act and which caused subsequent legislatures to enact the various amendments and supplements to that Act, have the same force and pressure of public policy behind them when applied to makers of notes accompanying mortgages. * * * Additional legislation is inevitable. The earlier it comes, the fewer will be the problems to solve and the injustices suffered.' Eisenberg & Spicer, supra, 3 Mercer Beasley L.Rev. at p. 41.

This case points up the anticipated problem and also indicates an inconsistent legislative approach to the mortgagee-noteholder situation as opposed to the mortgagee-bondholder transaction. However, a bond being completely absent from the present transaction, the statute cannot be held to apply.

If the statute does not apply, the next inquiry is whether the defendants are entitled to an evaluation of the mortgaged premises other than the price obtained at the foreclosure sale for the purpose of a deficiency judgment.

Basically, absent an allegation of fraud, a party to a mortgage foreclosure, unless given statutory authority, is not permitted, when sued for deficiency, to set up the sale on foreclosure of the mortgaged property for an inadequate price as a defense. 37 Am.Jur. Mortgages § 865 (1941). Snyder v. Blair, 33 N.J.Eq. 208, 209 (Ch.1880), supports the notion that the mortgagors are not entitled to any deduction from the mortgage debt beyond the net proceeds of the sale and that the 'sum for which property conveyed in pledge for the security of a debt is sold at judicial sale, must, so long as the sale stands, be taken, as between the parties to the suit, as a conclusive test of its value.' Underlying this theory is the concept that the confirmation of a foreclosure sale is the final judicial determination that the mortgaged property was sold at a fair price, and therefore, the defense of inadequacy of price cannot be raised in subsequent proceedings, and for the purpose of deficiency decree the price obtained at the sale is conclusive on the question of the market value of the property. See Cronin v. Gager-Crawford Co., 128 Conn. 688, 25 A.2d 652 (Sup.Ct.Err.1942).

The above principle has, however, been questioned and modified, especially during the period of economic depression. See, e.g., Baader v. Mascellino, 113 N.J.Eq. 189, 166 A. 466 (Ch.1933); Better Plan Bldg. & Loan Ass'n v. Holden, 114 N.J.Eq. 537, 169 A. 289 (Ch.1933). In order properly to evaluate any modification of the above rule, it is important to recognize the necessity that in order to protect his security, a mortgagee be permitted to bid in and purchase at the foreclosure sale without losing his privilege to obtain a deficiency judgment for the difference between the sale price and the amount of the mortgage debt. 4 American Law of Property, §§ 16.202, 16.209 (1952). Furthermore, the court must be aware of the basic equity principle, not dependent upon statute, that the mortgagee is not entitled to recover more than the full amount of his mortgage debt. E.g., Federal Title & Mortgage Guar. Co. v. Lowenstein, 113 N.J.Eq. 200, 166 A. 538 (Ch.1933); Fidelity Union Trust Co. v. Multiple Realty & Constr. Co., 131 N.J.Eq. 527, 26 A.2d 155 (Ch.1942). Both of these were 'depression period' cases. See also N.J.S. 2A:50--22(d), N.J.S.A.

In Federal Title & Mortgage Guar. Co. v. Lowenstein, the court said:

'The mortgagee will not be permitted to retain the estate which will, in effect, become absolute in him upon confirmation of the foreclosure sale, and also recover the debt which is the consideration of that estate by an action on the bond, except and until he credits upon that bond the fair value of the mortgaged premises so acquired by him.' (113 N.J.Eq. at p. 209, 166 A. at p. 542)

And, in Fidelity Union Trust Co. v. Multiple Realty & Constr. Co., the court commented:

'All that complainant can ask in equity is that his debt shall be paid, for 'equity will not suffer a double satisfaction to be taken.' * * * 'Satisfaction of the debt not pillage of the debtor's estate', is the province of the court of equity. That it would be unconscionable to permit a mortgagee to hold the mortgaged premises and to also collect the full amount of the mortgaged bond, thus obtaining a double satisfaction of his debt, has been repeatedly decided by the...