Brunswick Bank & Trust v. Affiliated Bldg. Corp.

• Decision Date: 17 March 2015
• Docket Number: DOCKET NO. A-5225-12T2, A-1893-13T3, A-2109-13T3
• Citation: 111 A.3d 710,440 N.J.Super. 118
• Parties: BRUNSWICK BANK & TRUST, Plaintiff–Respondent, v. 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.
• Court: New Jersey Superior Court — Appellate Division

440 N.J.Super. 118

111 A.3d 710

BRUNSWICK BANK & TRUST, Plaintiff–Respondent

v.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.

DOCKET NO. A-5225-12T2, A-1893-13T3, A-2109-13T3

Superior Court of New Jersey, Appellate Division.

Argued Jan. 6, 2015.

Decided March 17, 2015.

Philip R. Kaufman, Highland Park, 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, North Brunswick, on the brief).

Before Judges FISHER, NUGENT and MANAHAN.

Opinion

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 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, 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 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. Grieser, 415 N.J.Super. 37, 40, 999 A. 2d 1204 (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.

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 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.

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.

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, 166 A. 121 (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, 99 A. 3d 372 (App.Div.2014), certif. denied, 220 N.J. 574, 108 A. 3d 633 (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, 190 A. 2d 391 (Law Div.1963), aff'd, 83 N.J.Super. 497, 200 A. 2d 506 (App.Div.1964), aff'd, 44 N.J. 525, 210 A. 2d 401 (1965). In addition, we have held that, even in a commercial...