Central Penn Nat. Bank v. Stonebridge Ltd.

• Decision Date: 30 April 1982
• Citation: 185 N.J.Super. 289,448 A.2d 498
• Parties: CENTRAL PENN NATIONAL BANK, Plaintiff, v. STONEBRIDGE LIMITED, Stonebridge Corporation, V. A. R. C., Inc., John B. Canuso, Joan E. Canuso and Heritage Mortgage Finance Company, Defendants.
• Court: New Jersey Superior Court

Page 289

185 N.J.Super. 289

448 A.2d 498

CENTRAL PENN NATIONAL BANK, Plaintiff, v.STONEBRIDGE LIMITED, Stonebridge Corporation, V. A. R. C Inc., John B. Canuso, Joan E. Canuso and Heritage Mortgage Finance Company, Defendants.

Superior Court of New Jersey, Chancery Division Camden County.

Decided April 30, 1982.

Thomas C. Burke, Bellmawr, for plaintiff(Farr, Reifsteck, Wolf & Ware, Bellmawr, attorneys).

Jeffrey I. Baron, Marlton, for defendantsStonebridge Ltd., Stonebridge Corp., V.A.R.C., Inc., John Canuso, Joan Canuso(Jeffrey I. Baron, P. A., Marlton, attorney).

John R. Halleran, Middletown, for defendantHeritage Mortg. Finance Co.(Giordano, Halleran & Crahay, Middletown, attorneys).

DEIGHAN, J. S. C.

This matter initially came before the court on application of defendantsStonebridge Limited and Stonebridge Corporation(Stonebridge) for an order requiring defendantHeritage Mortgage Finance Company(Heritage) to take all steps necessary to have its sheriff's sale at the same time as the sheriff's sale by plaintiff Central Penn National Bank (Central Penn).¹That application has heretofore been denied and sale under the Central Penn mortgage has already been held; nevertheless, the court will briefly deal with the application.More important at this time is the cross-motion of Heritage (1) to declare that it may proceed against the guarantors of the note without being subject to the defense that the guarantors were not joined as partydefendants, as required by N.J.S.A. 2A:50-2, or (2) to reforeclose the mortgage and join the guarantors, or (3) to permit it to reopen its foreclosure judgment, amend the complaint and have its judgment amended to include the guarantors, and (4) to enjoin the sale of Central Penn until the court rules on the issue of the effect of the failure of Heritage to join the guarantors.

An emergency motion by phone conference was heard by the court on March 18, 1982 to enjoin the sale by Central Penn under its foreclosure judgment.The motion was objected to by both Central Penn and defendant Stonebridge.This sale was originally scheduled for January 22, 1982, but on application of Stonebridge the sale was adjourned to February 19, 1982 and was further adjourned until March 19, 1982.The court refused Heritage's application for further adjournment and the sale under the Central Penn mortgage was held.Therefore, the application of Heritage to enjoin the sale is moot.

First to be dealt with, even though it is also moot, is the application of Stonebridge to require Heritage to sell the lands under its mortgage simultaneously with the Central Penn sale.Heritage had a second mortgage on some of the same lands as Central Penn (common lands), and also held a mortgage on lands not covered by the Central Penn mortgage (Heritage lands).

The reason Stonebridge desired a simultaneous sheriff's sale on the common land subject to the Central Penn and Heritage mortgage was to provide Stonebridge with the opportunity for a "fair value hearing" in a later action for a deficiency.But, as Central Penn notes, the statutory right to such a hearing, N.J.S.A. 2A:50-3, is inapplicable in this case because the statute applies only to notes "given after the effective date of the amended act."The act was approved January 14, 1980 and was effective the first day of the calendar month next following the 90th day after enactment, namely, May 30, 1980.The notes antedate the effective date.

Even if defendants were to invoke the equitable fair value doctrine as promulgated by the Supreme Court in 79-83 Thirteenth Ave. Ltd. v. DeMarco, 44 N.J. 525, 210 A.2d 401(1965), and reaffirmed in Schwartz v. Bender Investments, Inc., 58 N.J. 444, 279 A.2d 100(1971), it would appear that no such relief could be given in the case of a second mortgage or under the New Jersey statute.N.J.S.A. 2A:50-8 sets forth a one-year statute of limitations for the bringing of a deficiency where the lien of the mortgage has been extinguished by foreclosure of a prior mortgage and a sale of the mortgaged premises.A suit under N.J.S.A. 2A:50-2 for a deficiency on the first mortgage must be commenced within three months from the date of the sale and confirmation.Therefore, it cannot be argued that the foreclosure of a first and second mortgage should be simultaneous because the limitation on actions for deficiencies are not the same.There can be no equitable relief in the case of the second mortgage because the second mortgagee is under no obligation to bid at the first mortgagee's foreclosure sale or to foreclose on the property after the first mortgage has foreclosed.

Moreover, this argument was raised and rejected in Hurdy v. Russo, 118 N.J.Super. 114, 286 A.2d 717(App.Div.1972).In that caseplaintiff held bonds secured by second mortgages and after foreclosure and purchase of the property by the first mortgagee at a sheriff's sale plaintiff brought suit on the bonds and was granted a summary judgment.On appeal defendants contended that they should have been allowed to prove the fair market value of the property and deduct that value from the balance due to the plaintiff.The Appellate Division, rejecting this argument, held:

We find defendants' argument to be without merit.N.J.S.A. 2A:50-8, under which this case properly arises, does not contain the deduction provisions for market value contained in N.J.S.A. 2A:50-3.Where, as here, plaintiff's security is extinguished by the foreclosure of a prior mortgage, he cannot look to the collateral for satisfaction of his debt, simply because there is none.Summary judgment was properly granted.[118 N.J.Super. at 115-116, 286 A.2d 717]

Heritage represented it would not be bidding at the Central Penn foreclosure, which means that Heritage will not be a proper party to any "fair market value" hearing with respect to the common lands.Defendants mortgagors and guarantors may not set off the fair market value against the second mortgage of Heritage, where Heritage does not purchase the premises subject to the first mortgage.SeeHillside Nat'l Bank v. Silverman, 116 N.J.Eq. 463, 173 A. 326(Ch.1934).For the foregoing reasons the court refused to compel the foreclosure of the common lands subject to the Central Penn and Heritage mortgages simultaneously and rejected Stonebridge's argument that it was entitled to a fair value hearing on lands subject to the second mortgage of Heritage.

Next to be dealt with are the cross-motions of Heritage.In order to deal with these cross-motions it is necessary to develop the procedural background in this matter.

On September 19, 1980 Central Penn filed a complaint in foreclosure for certain vacant lands comprising some 3,700 lots which were subdivided for a housing development located in Gloucester Township, Camden County, New Jersey.Heritage was made a defendant by virtue of the fact that it held a second mortgage on these same lands (common lands) but, as it later developed, Heritage also held mortgages on other lands which were not covered by the Central Penn mortgage (Heritage lands).

Heritage filed a crossclaim to foreclose its second mortgage on the common lands as against defendant owners Stonebridge only and not against the guarantors of the note, defendantsV. A. R. C., Inc. and John and Joan Canuso(guarantors).Central Penn had made the guarantors partydefendants.Even though Heritage did not crossclaim against the guarantors, the answer filed by Stonebridge to the crossclaim also included the answer by the guarantors.

Extensive discovery by way of voluminous interrogatories and depositions was engaged in by all parties.In the fall of 1981 the matters were scheduled for trial, but on September 18, 1981 Heritage moved to file an amended crossclaim to include the two additional mortgages which had been inadvertently omitted from the original crossclaim.Argument was heard on a continued return day of the motion and a crossmotion was made by Stonebridge to dismiss the Heritage crossclaim or to preclude submission of evidence by Heritage because of a failure to answer interrogatories.

It appeared to the court that it would be unfair to Central Penn to further delay the foreclosure of its mortgage because of the application of Heritage; an order was entered permitting Heritage to amend its crossclaim within a period of two weeks, severing the Heritage foreclosure from the Central Penn foreclosure and ordering Heritage to submit full and responsive supplemental answers to interrogatories.Within the two-week period Heritage served an amended crossclaim in foreclosure again, against only the owners of the premises, defendant Stonebridge.On November 9, 1981, trial was held on the Central Penn foreclosure and on that date a judgment of a foreclosure was entered in favor of Central Penn against Stonebridge for the sum of $1,380,444.24, together with costs.

On December 21, 1981 trial on the Heritage amended crossclaim was commenced.Heritage presented its proofs and at the outset of the trial the attorney for Stonebridge made it clear that a crossclaim by Heritage was only against Stonebridge Limited.After presentation of the case by Heritage, the attorney for Stonebridge interposed no defense, explaining that the amended crossclaim was against only the mortgagors, Stonebridge, and therefore no defense to the foreclosure proceeding would be interposed.Counsel for Stonebridge went on to state:

I'd like that to be clear your honor, because the pleadings drafted by both Central Penn in [sic] the original crossclaim by Mr. Lueddeke had named the guarantors and I think, of course, the court would agree at this posture of the case the guarantors can't be parties until a deficiency, if it exists, has been established.

Actually, the original crossclaim did not name the guarantors, although they had been named in the complaint by Central Penn.The attorney for Heritage acknowledged that the amended crossclaim was...