Fed. Title & Mortgage Guar. Co. v. Lowenstein

• Decision Date: 09 May 1933
• Citation: 166 A. 538
• Parties: FEDERAL TITLE & MORTGAGE GUARANTY CO. v. LOWENSTEIN et al.
• Court: New Jersey Court of Chancery

166 A. 538

FEDERAL TITLE & MORTGAGE GUARANTY CO.

v. LOWENSTEIN et al.

Court of Chancery of New Jersey.

May 9, 1933.

Syllabus by the Court.

The Court of Chancery has inherent power to regulate and control sales in foreclosure to the end that equity shall be done to all parties.

Suit by the Federal Title & Mortgage Guaranty Company against Eva Lowenstein and others. On objections to confirmation of mortgage foreclosure sale.

Decree in accordance with opinion.

Richard J. Fitzmaurice, of Orange, for complainant.

Leber & Ruback, of Newark, for objectors.

BERRY, Vice Chancellor.

The bill is to foreclose a mortgage and has resulted in a decree upon which there was due at the time of the sheriff's sale $41,787.36. At that sale complainant was the only bidder and bid in the mortgaged premises for $100. Objections to the confirmation are based upon the contention that the sum realized is "grossly insufficient and unconscionably inadequate." There was nothing irregular in the sale, but affidavits filed by the defendants in support of their objections indicate a complete lack of competitive bidding, not only with respect to the property here involved, but also with respect to practically every property sold by the sheriff on the date of the sale, which was May 2, 1933, and of which there were about thirty. The result of these sales is shown by the following tabulation contained in one of the supporting affidavits:

Amount of Decree

Sale price of property

$41,787.36

$ 100.

18.487.50

100.

10,587.00

100.

11,697.25

100.

5,237.97

100.

9,297.26

100.

24,881.80

100.

8,475.77

5800.

20,202.82

100.

8,993.19

100.

9.897.79

100.

29,495.38

100.

6,606.11

100.

2,902.44

100.

5,485.56

100.

32,468.00 *

100.

539.30 *

100.

4,761.27

100.

8,413.69

100.

5,260.42

200.

9,600.00

100.

7,952.01

100.

5,620.63

100.

6,935.50

100.

9,366.47

100.

92,618.72

600.

8,410.00

100.

7,333.57

100.

13.486.63

100.

17,873.70

100.

10,134.69

100.

(The decrees marked with an asterisk were for the satisfaction of second mortgages).

In appraising the property as of the date of the sale, a competent realtor says in his affidavit: "It is not possible to appraise said property or in fact any property from current actual sales in the immediate vicinity inasmuch as there have been no recent sales except sheriff's sales which are no indication of true value. The real estate market has for a long time been utterly paralyzed. The property, however, can be given some reasonable valuation, arrived at by regard to the capitalization of income, present cost of replacement of the buildings and the likelihood of demand for that kind of property whenever the real estate market becomes fairly normal again." And he appraised the property at $27,500 The gross rental yield is $3,520 per annum, and the property is assessed for the present year for the purpose of taxation at $39,100. No answering affidavits have been filed on behalf of the complainant, and the sum of $27,500 fixed by the appraiser was agreed upon by counsel for the complainant in open court, on the argument of these objections, as the fair value of the premises on the date of the sheriff's sale.

The defendants contend that, if the sale is confirmed, it will subject them to the liability of a deficiency judgment in excess of the original amount of the mortgage, and that such a result, in face of the fact that the agreed value of the mortgaged premises is $27,500, would be unjust and unconscionable. It is contended and admitted that the failure of the defendants to protect themselves at the foreclosure sale, and the lack of competitive bidding thereat, were due to present economic conditions, as a result of which the real estate market is stagnant and mortgage money is not available. No argument is needed in support of this contention. The record of sheriff's sales above recited, and which is but a fair example of everyday occurrences throughout the country, speaks eloquently of present day conditions and of which the court takes judicial notice. Foreclosure sales were originally intended to relieve the mortgagor from the sometimes harsh results of strict foreclosure, as well as to protect the mortgagee when the security proved inadequate; but under present conditions about the only purpose of such a sale is to fix the amount of the deficiency. Except for that, strict foreclosure would accomplish the same purpose. Such a sale is no longer of any protection to the mortgagor. His shield has been converted into a sword to be used against him.

The affidavit of the sheriff attached to his report of sale is to the effect that the price for which the mortgaged premises were sold "was the best that the property would, at the time of the sale, bring in cash," and it is admitted that no higher or better price could have been obtained at such sale on the day thereof.

The questions presented by this proceeding are, first, whether, in view of these facts, this court may refuse to confirm the sale, and, second, if so, what measure of relief is to be afforded to the parties.

Our statute law respecting the report and confirmation of sales of mortgaged premises will be found in P. L. 1880, p. 256, 3 Comp. St 1910, p. 3422, § 50, and P. L. 1902, p. 541, 1 Comp. St p. 447, § 94.

The complainant purchaser insists that, upon the facts averred in the sheriff's affidavit, which are not controverted, the court is not privileged to deny confirmation, and that the actual value of the property is irrelevant on this motion. The argument that confirmation is obligatory rests on the proviso of section 4 of the Act of 1880 "that no sale of mortgaged premises shall be confirmed by the court or further proceedings had until the court, or such judge, is satisfied by evidence that the property has been sold at the highest and best price the same would then bring in cash, and such evidence may be in the form of affidavits." 3 Comp. St. 1910, p. 3422, § 50.

The proviso is a limitation upon the exercise of the power to confirm, the limitation being that the court shall not confirm the sale unless satisfied that the price is the highest and best in cash then obtainable; but it is not a mandate to confirm when so satisfied. The Legislature did not intend to control judicial action in refusing to confirm when the mortgaged property does not yield an appropriate equivalent in money, but prescribed an upset criterion or proof of fairness of the bid, which, unless met, confirmation must be denied. The statutory proof is the key to, but does not rule, the decision. It is still the court's privilege to withhold sanction of a sale which frustrates the aim of our foreclosure act, securing, by competitive bidding, the highest and best price, not only to satisfy the debt, but as well to save to the owner the value of his equity. It would be inviting a recrudescence of the former harsh remedy of strict foreclosure, whereby the owner lost his all to the mortgagee, if he failed to pay the mortgage debt within a given time, long since abandoned in a spirit of justice to the owner, if, upon objection to confirmation of a sale of property clearly worth a thousand for $100, the mortgagee-purchaser could tie the hands of the court by submitting the statutory proof as absolute and invoking the proviso, just quoted, as mandatory. It is my opinion that the proviso leaves supervision of sales bestowed in the body of the act undiminished and judicial action untrammeled save as to requirement of a minimum of proof to safeguard against imposition, and I have no doubt of the court's duty to reject confirmation upon legal or equitable grounds though there be a compliance with the requirements.

While ordinarily confirmation of a judicial sale will not be refused because of mere inadequacy of price, slight circumstances in addition thereto, as shown by a long line of cases, will suffice to move the conscience of the court to refuse confirmation; and gross inadequacy of price sufficient to shock the conscience of the court compels an inference of fraud (Hoffman v. Godfrey, 79 N. J. Eq. 617, 82 A. 900), and justifies refusal to confirm. The following cases indicate what slight circumstances, coupled with mere inadequacy of price, have been considered as justifying a refusal to confirm:

In Seaman v. Riggins, 2 N. J. Eq. 214, 34 Am. Dec. 200, a defendant was misdirected to the place of sale.

In Howell v. Hester, 4 N. J. Eq. 266, the petitioner's agent mistook the date of sale.

In Workingmen's B. & L. v. McGillick (N. J. Ch.) 28 A. 468, the bidder arrived ten minutes late after having attended at twelve prior adjournments.

In Wetzler v. Schaumann, 24 N. J. Eq. 60, the owner was misinformed as to the terms of the sale.

In Rea v. Wheeler, 27 N. J. Eq. 292, counsel for one of the parties was too ill to attend the sale.

In Banta v. Brown, 32 N. J. Eq. 41, a misunderstanding as to sale arose between solicitors of the parties.

In Dunlop v. Chenoweth, 90 N. J. Eq. 85, 105 A. 592, a defendant bidder was ill.

In New Jersey National Bank v. Savemore Realty Company, 107 N. J. Eq. 478, 153 A. 480, an interested bidder arrived five minutes too late because of a street car delay.

In Ryan v. Wilson, 64 N. J. Eq. 797, 52 A. 993, 995, 53 A. 1039, Vice Ordinary Reed said: "It would seem that * * * a court might refuse to approve a sale, when upon the same facts it would refuse to set aside a sale. The court would simply refuse to exert its potter affirmatively." (Italics mine). He held that the "manner" in which the sale was conducted was responsible for the low bid which the Orphans' Court had refused to confirm and which action he affirmed. His decision was affirmed by the Court of Errors and Appeals. Mr. Justice Dixon, writing for that court, and contrasting the case at bar with Chancery decisions involving confirmation of sales pursuant to P. L. 1880, p. 256, said: "Here the power of confirmation or rejection is untrammeled by the proviso which was supposed to narrow the scope of...