Columbia Sav. & Loan v. Easterlin

• Citation: 191 N.J.Super. 327,466 A.2d 968
• Parties: COLUMBIA SAVINGS & LOAN, Plaintiff, v. Anita M. EASTERLIN, Judith Bogusz, a/k/a Judith A. Bogusz, First Peoples Bank of New Jersey, National Bank & Trust Co. of Gloucester County, Internal Revenue Service, United States of America, Defendants.
• Decision Date: 29 March 1983
• Court: New Jersey Superior Court

Page 327

191 N.J.Super. 327

466 A.2d 968

COLUMBIA SAVINGS & LOAN, Plaintiff, v. Anita M. EASTERLIN, Judith Bogusz, a/k/a Judith A. Bogusz First Peoples Bank of New Jersey, National Bank & Trust Co of Gloucester County, Internal Revenue Service, United States of America, Defendants.

Superior Court of New Jersey, Chancery Division,

Camden County.

Decided March 29, 1983.

Richard B. Supnick, Haddonfield, for plaintiff (Supnick, Mitnick, Vogelson & Josselson, Haddonfield, attorneys).

Peter M. Rhodes, Camden, for defendants Easterlin and Bogusz (Cahill, Wilinski & Cahill, Haddonfield, attorneys).

Thomas G. Camp, Woodbury, for defendant National Bank & Trust Company of Gloucester County.

DEIGHAN, J.S.C.

This is a foreclosure action to enforce a due-on-sale clause in a mortgage. Plaintiff seeks to accelerate payment of the principal and interest based upon a change of ownership of the premises. Plaintiff and defendants mortgagor and grantee apply for summary judgments. Defendant National Bank & Trust Company, a second mortgagee, also moves for summary judgment on its crossclaim against the individual defendants. Essentially, the motions require a determination of the applicability in New Jersey of Title III, Part C, Section 341(b)(1) of the Depository Institutions Act of 1982, 96 Stat. 1505, 12 U.S.C.A. § 1701j-3. The act, which was recently enacted by Congress effective October 15, 1982 preemptorily validates, with certain exceptions, due-on-sale clauses in home mortgages held by all banks and savings and loan associations, including state chartered institutions. It is held that the act is applicable in New Jersey and that due-on-sale clauses in home mortgages are enforceable under the act.

On June 16, 1978 defendant Anita Easterlin executed a mortgage to plaintiff in the amount of $25,000 on premises located at 210 Maud Avenue, Brooklawn, New Jersey. On October 1, 1980 Easterlin conveyed the premises to defendant Judith Bogusz. Thereafter, Bogusz made all monthly mortgage payments with her personal check. The mortgage contains a clause accelerating payment of the principal and interest upon transfer or conveyance of the property:

In the event the title to the mortgaged premises shall become vested in any person or entity other than the Mortgagors herein, the aforesaid principal indebtedness or so much thereof as may remain unpaid with all arrearages of interest and all further or additional advances made hereunder, shall at the option of the mortgagee become and be due immediately thereafter, anything herein contained to the contrary hereof in anywise notwithstanding.

Subsequently, Bogusz placed a second mortgage on the property with First Peoples Bank and on April 1, 1981 she replaced that mortgage with another mortgage in the amount of $25,000 with National Bank and Trust Company of Gloucester. On September 10, 1982, after commencement of the foreclosure proceedings, Bogusz reconveyed the property to Easterlin. Plaintiff's mortgage also contained a clause accelerating payment of principal and interest if the property was further encumbered by additional indebtedness. Plaintiff is not pressing the foreclosure for breach of that clause but is relying on the due-on-sale clause.

Initially, plaintiff contends that a due-on-sale clause is a valid contractual condition which automatically accelerates payment of the mortgage upon breach of the clause. Poydan, Inc. v. Kiriaki, 130 N.J.Super. 141, 325 A.2d 838 (Ch.Div.1974), aff'd o.b. 139 N.J.Super. 365, 354 A.2d 99 (App.Div.1976); Shalit v. Investors S. & L., 101 N.J.Super. 283, 244 A.2d 151 (Law Div.1968). But see Fidelity Land Develop. Corp. v. Rieder & Sons, 151 N.J.Super. 502, 377 A.2d 691 (App.Div.1977). See also, Fogel v. S.S.R. Realty Associates, 183 N.J.Super. 303, 443 A.2d 1093 (Ch.Div.1981) and Egner v. Egner, 183 N.J.Super. 326, 443 A.2d 1104 (Ch.Div.1982), aff'd o.b. 185 N.J.Super. 1, 447 A.2d 182 (App.Div.1982). Additionally, plaintiff contends that acceleration of a mortgage loan for breach of a due-on-sale clause to obtain the benefit of current interest rates is a proper and reasonable business practice of a savings and loan association. It appears that updating its loan portfolio is consistent with the purpose of N.J.S.A. 17:12B-12 for the promotion of "thrift, home-ownership and housing or other investment funds ..." Century Fed. S. & L. Ass'n v. Van Glahn, 144 N.J.Super. 48, 53-55, 364 A.2d 558 (Ch.Div.1976).

Plaintiff further invokes the Depository Institutions Act of 1982, supra, enacted by Congress, effective October 15, 1982. As noted, § 341(b)(1) of the act provides that a lender may, subject to certain exceptions, enter into or enforce a contract containing a due-on-sale clause with respect to a real property loan. This section preempts any provision of the constitutions or laws, including judicial decisions, of any state to the contrary. Ibid. ¹

Section 341(a)(2) of the act defines the term "lender" as a person, or government agency making a real property loan, or any assignee or transferee of a person or government agency. This definition included individuals, state and federally-chartered savings and loan associations, mutual savings banks, state charter banks, national banks, mortgage bankers and other HUD approved lenders, manufactured home retailers which extend credit, finance companies which make real property loans, agencies of the federal government, such as the Department of Housing and Urban Development and transferees, Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. Legislative History. L. 97-20, U.S.Code Cong. & Admin.News 1982, 3110, 3111; 29 N.J.Practice (Cunningham & Tischler, Law of Mortgages (1982 Supp.)) § 26A at 37.

Defendants Easterlin and Bogusz contend that the conveyance from Easterlin to Bogusz did not impair the security of the mortgage; that on September 10, 1982, after foreclosure suit was instituted, Bogusz reconveyed the property to Easterlin and cured any breach of the due-on-sale thereby precluding foreclosure under Fidelity Land Develop. Corp. v. Rieder & Sons, supra. They assert that under § 341(c)(1) of the Depository Institutions Act of 1982 the mortgage herein concerned is exempt from the application of the act. This section provides that in states where enforcement of due-on-sale clauses was either prohibited or restricted by state law prior to the effective date of the new federal statute, the act is inapplicable for three years with respect to mortgages originated or assumed after establishment of the rule prohibiting or restricting enforcement of the due-on-sale clause and before the effective date of the new federal statute. See 29 N.J. Practice, supra at 37. Defendants point out that plaintiff's mortgage was made and assumed in 1978 after the case of Fidelity Land Develop. Corp. v. Rieder & Sons, supra, which was decided in 1977. They argue that under Rieder & Sons a mortgagee seeking to accelerate a mortgage on a transfer or ownership must show that the transfer increased the risk or impaired the security of the mortgage. 151 N.J.Super. at 509, 377 A.2d 691. They assert that the reconveyance eliminated the condition which permitted the acceleration. Id. at 511-512, 377 A.2d 691. Defendants further maintain the acceptance by plaintiff of payments from Bogusz after transfer constitutes a waiver or estoppel barring foreclosure. Engler v. Buesser, 106 N.J.Eq. 173, 150 A. 576 (E. & A.1930); Freund v. Weisman, 101 N.J.Eq. 245, 137 A. 885 (E. & A.1927); Bell v. Romaine, 30 N.J.Eq. 24 (Ch.1977).

The Depository Institutions Act of 1982, with certain exceptions, preempts state law on the effect of due-on-sale clauses. § 341(b)(1) provides:

Notwithstanding any provision of the constitution or laws (including the judicial decisions) of any State to the contrary, a lender may, subject to subsection (c), enter into or enforce a contract containing a due-on-sale clause with respect to a real property loan.

The exception referred to in § 341(c)(1) states:

In the case of a contract involving a real property loan which was made or assumed ... during the period beginning on the date ... on which the highest court of such State has rendered a decision (or if the highest court has not so decided, the date on which the next highest Appellate Court has rendered a decision resulting in a final judgment ...) prohibiting such exercise and ending on the date of the enactment of this section, the provisions of subsection (b) shall apply only in the case of a transfer which occurs on or after the expiration of three years after the date of the enactment of this Act....

Under this latter section, if the mortgage with a due-on-sale clause was made or assumed between the date on which an appellate court rendered a decision prohibiting or restricting the exercise of such a clause and October 15, 1982, the provision of subsection 341(b)(1) applies only in the case of transfer which occurs three years after October 15, 1982. See, also, 29 N.J. Practice, supra at 37.

§ 341(c)(1) refers to a decision by the "highest court of such state" or, if the highest court has not so decided the date on which the "next highest appellate court" has rendered a decision resulting in a final judgment. In Barry M. Dechtman, Inc. v. Sidpaul Corp., 89 N.J. 547, 446 A.2d 518 (1982), the New Jersey Supreme Court noted that the question concerning acceleration for violation of the due-on-sale provision has heretofore been unresolved by that court. Id. at 555, 446 A.2d 518. The court noted the split of authority on the question citing Poydan, Inc. v. Kiriaki, supra, 130 N.J.Super. at 149, 150, 325 A.2d 838 and cases from other jurisdictions upholding acceleration, and Fidelity Land Develop. Corp. v. Rieder & Sons, supra, 151 N.J.Super. at 508-514, 377 A.2d 691 and cases from other jurisdictions denying acceleration of the due-on-sale clause unless the security is impaired by the transfer.

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