Chase Manhattan Bank v. Josephson

• Decision Date: 13 April 1994
• Citation: 135 N.J. 209,638 A.2d 1301
• Parties: The CHASE MANHATTAN BANK, a National Association, Plaintiff-Respondent, v. Mr. and Mrs. Seymour JOSEPHSON, Sherri Bagnell and Robert Hanselmann, Defendants-Appellants, and Saul Werner and Grace Werner, Matthew Steinfeld, Kim Cagliari, Corrine McLaughlin, and Alex Caprio, Defendants.
• Court: New Jersey Supreme Court

Page 209

135 N.J. 209

638 A.2d 1301

The CHASE MANHATTAN BANK, a National Association, Plaintiff-Respondent, v. Mr. and Mrs. Seymour JOSEPHSON, Sherri Bagnell and Robert Hanselmann, Defendants-Appellants and Saul Werner and Grace Werner, Matthew Steinfeld, Kim Cagliari, Corrine McLaughlin, and Alex Caprio, Defendants.

Supreme Court of New Jersey.

Argued Oct. 13, 1993.

Decided April 13, 1994.

Susan R. Oxford, Asst. Deputy Public Defender, argued the cause for appellants (Zulima V. Farber, Public Advocate, attorney).

Kenneth D. McPherson, Jr., Secaucus, argued the cause for respondent (Waters, McPherson, McNeill, attorneys; Mr. McPherson and Gregory J. Castano, of counsel; Robert J. Donaher, on the brief).

Melville D. Miller, Jr., Edison, argued the cause for amicus curiae Legal Services of New Jersey. (Mr. Miller, attorney; Mr. Miller and Stephen St. Hilaire, on the brief).

Dennis R. Casale, Princeton, argued the cause for amicus curiae New Jersey Bankers Association (Jamieson, Moore, Peskin & Spicer, attorneys).

Gregory C. Diebold, Jersey City, submitted a brief on behalf of amicus curiae Hudson County Legal Services (Timothy K. Madden, Director, attorney).

Judith Trachtenberg, Roosevelt, submitted a letter brief on behalf of amicus curiae Non-Profit Affordable Housing Network of New Jersey, Inc.

The opinion of the Court was delivered by

STEIN, J.

The issue presented by this appeal is whether the Anti-Eviction Act ("Act"), N.J.S.A. 2A:18-61.1 to -61.12, as amended by L.1986, c. 138, protects tenants from eviction by foreclosing mortgagees unable to establish any of the statutory grounds for which eviction is authorized. See N.J.S.A. 2A:18-61.1. More specifically, we consider whether the 1986 amendment to N.J.S.A. 2A:18-61.3, which extended the Act's anti-eviction restrictions to "an owner's or landlord's successors in possession or ownership," superseded this Court's decision in Guttenberg Savings & Loan Ass'n v. Rivera, 85 N.J. 617, 428 A.2d 1289 (1981), in which we held that the Anti-Eviction Act did not protect tenants from eviction by a foreclosing mortgagee.

Appellants are tenants against whom the Chancery Division entered an order for possession in favor of Chase Manhattan Bank ("Chase"), the mortgagee foreclosing on the property that the tenants occupy. They contend that the amended Anti-Eviction Act prohibited the court from entering an order for possession for Chase absent a showing of statutory good cause. Chase responds that the 1986 amendments to the Act should not be construed to overrule the holding in Guttenberg. It asserts that the Legislature, had it intended to overrule our decision in Guttenberg, would have expressed its intention to do so in more explicit language.

The Appellate Division agreed with Chase's contention and affirmed the Chancery Division. 261 N.J.Super. 428, 619 A.2d 241 (1993). The court determined that if the Legislature had intended to amend the statute to overturn the decision in Guttenberg, that purpose would have been clearly expressed in the statutory language and reflected in the legislative history. Absent such expression, the court concluded, Guttenberg 's interpretation of the Anti-Eviction Act survived the 1986 amendments and, therefore, the Act did not diminish a court's authority to enter an order of possession for a foreclosing mortgagee resulting in the eviction of tenants from the mortgaged property.

We granted the tenants' petition for certification, 133 N.J. 439, 627 A.2d 1144 (1993). Although the parties have resolved the underlying dispute, we elect to consider and decide the questions presented because of their public importance. ¹ See In re J.I.S Indus. Serv. Co. Landfill, 110 N.J. 101, 104-05, 539 A.2d 1197 (1988).

I

A summary of the facts underlying the litigation will provide a context for resolution of the issues. In April 1973, defendants Marion and Seymour Josephson, a married couple, moved into a single-family home in West Orange that was located on property owned by the Carteret School for Boys. The Josephsons had entered into a one-year written lease, which they had renewed annually until 1978, after which they continued their tenancy pursuant to an oral agreement to pay the same rent on a month-to-month basis.

In 1987, the Carteret School for Boys sold the property, including the Josephsons' residence, to Saul and Grace Werner. The Werners financed the purchase in part with a loan from Chase Manhattan Bank, secured by a mortgage and an assignment of rents and leases. The deed and mortgage contained a standard clause providing that the mortgagee would be entitled to possession on default by the mortgagor.

The Werners subsequently defaulted on the loan, and Chase filed a complaint in June 1990 to foreclose the mortgage. In March 1991 the Werners settled with Chase by conveying a deed for the property in lieu of foreclosure. Thus, Chase obtained not only the possessory interest to which it had been entitled on the Werners' default, but also became the owner of the property by virtue of the deed from the Werners.

Because the three single-family homes on the property were occupied by tenants paying from $550 to $560 monthly, rents described by Chase as far below fair market value, Chase obtained leave to amend its complaint to add the tenants as defendants so that it could evict them and obtain exclusive possession of the property. In its complaint, Chase asserted that it had taken its mortgage on the property subject to no encumbrances. The Josephsons failed to answer the complaint and requested only that Chase afford them additional time within which to secure adequate alternative housing. Chase agreed and, instead of seeking a default judgment and order for eviction, moved for summary judgment and permitted the Josephsons to remain in their home rent-free pending their relocation.

Approximately one month later, in January 1992, the Chancery Division granted Chase's motion for summary judgment. Chase continued to forbear in collecting rental income from the Josephsons and permitted them additional time to relocate. Subsequently, in February 1992, the Public Advocate, acting on behalf of the Josephsons and other defendants, filed a motion in the Chancery Division seeking reconsideration of its judgment pursuant to Rule 4:49-2 or, alternatively, relief from its judgment under Rule 4:50-1(f). (Chase's complaint originally sought the eviction of other tenants as well as the Josephsons. The Appellate Division dismissed the appeal with regard to those other tenants because they had voluntarily surrendered possession of the premises. 261 N.J.Super. at 433, 619 A.2d 241.) The Public Advocate argued that the 1986 amendments to the Act made its provisions applicable to evictions by foreclosing mortgagees. Alternatively, the Public Advocate maintained that the Court's holding in Guttenberg, supra, 85 N.J. 617, 428 A.2d 1289, exempted foreclosing mortgagees from the Act only with respect to tenancies that had commenced subsequent to the mortgage and that because the Josephsons' tenancy predated the execution of the mortgage, the Act protected them from eviction.

The court denied the Josephsons' motion, finding first that the fact that their oral month-to-month tenancy predated the mortgage did not exempt them from our holding in Guttenberg, and also that the 1986 amendments to the Act were not sufficiently specific to supersede Guttenberg 's exclusion of foreclosing mortgagees. However, the court stayed execution of the judgment for possession pending appeal and the Josephsons' payment to Chase of both the past rent that Chase had excused and their continuing rental obligations. The Josephsons tendered the rental payments to Chase with assistance from the Homelessness Prevention Program of the Department of Community Affairs.

Affirming the judgment of the Chancery Division, the Appellate Division first determined that Guttenberg did not afford an exemption under the Act to tenants without a lease whose possession predated the mortgage. 261 N.J.Super. at 433-35, 619 A.2d 241. The court recognized, however, that if the 1986 amendments superseded Guttenberg and applied the Act to mortgagees, the distinction between a tenancy and a leasehold would be irrelevant because the Act would protect tenants holding possession under either interest. Id. at 435, 619 A.2d 241. The court concluded, however, that the Josephsons were not protected because the language amending the Act, although broad enough to encompass foreclosing mortgagees, was not sufficiently precise in its reference to mortgagees to support a finding that the Legislature intended to overturn Guttenberg. Id. at 437-40, 619 A.2d 241.

II

A review of the law regarding the respective rights of mortgagees and tenants informs our consideration of the Anti-Eviction Act's application to foreclosing mortgagees. That review encompasses the common law prior to the Act, the changes effected by the Act, interpretation of the Act by this Court in Guttenberg, and the amendment of the Act in 1986.

A

The common law in New Jersey holds that a mortgagee is entitled to possession of mortgaged premises on default of the loan secured by the mortgage. See Guttenberg, supra, 85 N.J. at 626, 428 A.2d 1289 (citing Dorman v. Fisher, 31 N.J. 13, 14, 155 A.2d 11 (1959), and Shields v. Lozear, 34 N.J.L. 496 (E. & A.1869)). Except for that common-law entitlement, New Jersey follows a "lien" as opposed to a "title" theory of mortgages. Execution of the mortgage does not convey to the mortgagee title that is defeasible on payment of the secured debt, but rather confers on the mortgagee a lien on the property that secures the debt. See Sears, Roebuck & Co. v. Camp, 124 N.J.Eq. 403, 408, 1 A.2d 425 (E. & A.1938); 29 New Jersey Practice, Law of Mortgages § 4, at 21 (Roger A. Cunningham & Saul Tischler) (1975) (hereinafter New Jersey Practice ). Thus, on default, the mortgagee has only a possessory...