In re Goione
| Decision Date | 08 January 2019 |
| Docket Number | Case No. 18-26805 (MBK) |
| Citation | 595 B.R. 477 |
| Parties | IN RE: Michael W. GOIONE & Kimberly W. Goione, Debtors. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Joseph Casello, Esq., Collins, Vella & Casello, 2317 Route 34 South, Suite 1A, Manasquan, NJ 08736, Attorney for the Debtors
Michael Kahme, Esq., Mark A. Roney, Esq., Hill Wallack LLP, 21 Roszel Road, P.O. Box 5226, Princeton, NJ 08543, Attorney for Amboy Bank
This matter comes before the Court upon the motion (the "Motion") filed by Amboy Bank ("Amboy") seeking an order determining the amount due Amboy from proceeds of the postbankruptcy sale of Michael and Kimberly Goione's (the "Debtors") former residence, and the cross-motion filed by Debtors seeking to reduce Amboy's payoff (the "Cross Motion"). The Court conducted hearings in this matter on November 19, 2018, and on November 29, 2018. The Court has received and reviewed the parties' initial and supplemental submissions, and has heard oral argument. For the reasons expressed below, the Court grants the Debtors' Cross Motion, in part, and denies Amboy's Motion in part. The Court issues the following findings of fact and conclusions of law as required by FED. R. BANKR. P. 7052.1
The Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a), and the Standing Order of the United States District Court dated July 10, 1984, as amended September 18, 2012, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(B)&(O). Venue is proper in this Court pursuant to 28 U.S.C. § 1408.
This case centers on a dispute over the correct amount due on first and second mortgage obligations owing to Amboy. Within this context, there are three areas of inquiry for the Court's consideration. The first set of issues is whether the merger doctrine, established under New Jersey common law, precludes Amboy from seeking interest at the contract rate, including the penalty interest rate, or, in the alternative, whether equitable considerations warrant disregarding the judgment rate of interest in the foreclosure judgement.2 The remaining issues for examination are whether the Debtors' proposed treatment of the claims modifies Amboy's rights proscribed by the anti-modification provisions set forth in 11 U.S.C. § 1322(b)(2)3 , and, in that event, whether the foreclosure judgments fall under the § 1322(c)(2) exception to § 1322(b)(2).
On January 4, 2008, the Debtors and Amboy executed a loan agreement and note in the amount of $750,000 to construct a single-family residential dwelling located at 46 Clay Street, Fair Haven, New Jersey (the "Property"). Also, on January 4, 2008, in order to secure the obligation under the note, the Debtors executed and delivered to Amboy a mortgage. On June 12, 2009, the Debtors executed and delivered a revolving credit loan agreement, a revolving credit note in the amount of $100,000 and a second mortgage on the Property. On November 28, 2010, the Debtors executed a revolving credit loan agreement and a revolving credit note, which replaced the 2009 revolving credit loan agreement and the 2009 revolving note in the original principal amount of $100,000.
The Debtors defaulted on both mortgages, and, on September 23, 2016, Amboy commenced a foreclosure action with respect to the Property in the Superior Court of New Jersey, Chancery Division, Monmouth County. The Debtors neither appeared in, nor contested the foreclosure action and the court entered a final judgment on May 11, 2017. Thereafter, the Monmouth County Sheriff scheduled a sale for the Property for August 28, 2017. On August 25, 2017, the Debtors filed their first chapter 13 bankruptcy petition in the United States Bankruptcy Court for the District of New Jersey. The Debtors' case was dismissed on September 22, 2017, for failure to file missing documents. Amboy caused the sale to be rescheduled to October 23, 2017.
On October 20, 2017, the Debtors again filed for bankruptcy under chapter 13. On December 14, 2017, Amboy filed a motion for relief from the automatic stay due to the Debtors' failure to make postpetition payments as required by their proposed chapter 13 plan. On January 12, 2018, the Court entered an order vacating the automatic stay in favor of Amboy. On February 5, 2018, the Debtors filed a motion to reinstate the automatic stay, which Amboy opposed. On February 26, 2018, the Court entered an order adjourning the motion to May 9, 2018, and reinstating the stay pending further order upon certain conditions, including maintenance of all required contractual obligations. On May 21, 2018, the Court entered another interim order continuing the stay upon certain conditions and continuing the motion to August 8, 2018. On August 8, 2018, the Debtors' motion to reinstate was denied. The second bankruptcy was dismissed on August 9, 2018. The sheriff's sale was then rescheduled to August 27, 2018. Five days before the rescheduled sheriff's sale, on August 22, 2018, the Debtors filed their third and current chapter 13 petition, along with an adversary complaint seeking to enjoin Amboy from proceeding with the sheriff's sale. This Court stayed the sheriff's sale until October 22, 2018, to allow Debtors to pursue a sale of the property.
Within a very short period of time after the third bankruptcy filing, the Debtors obtained an acceptable contract for the sale of the Property, which sale closed on October 31, 2018. In connection with the sale, Amboy provided Debtors with a payoff of its secured claim by letter dated October 5, 2018, good through October 31, 2018. The payoff reflected that Amboy had incurred attorney's fees of $17,156.75 in the first and second bankruptcies and costs therein of $1,203.68. Through October 5, 2018, Amboy incurred additional fees of $8,925.00, and costs of $365.75 — excluding any costs and fees accrued after the filing of the Motion.
The Debtors objected to the interest rate Amboy had applied to its secured claim, as well as the demand for attorneys fees. Amboy seeks $1,038,268.99, whereas Debtors assert that application of the statutory judgment rate reduces the amount to $920,994.26, which was paid at closing. The parties could not resolve the interest dispute and escrowed the disputed portion of the closing proceeds, subject to resolution by this Court.
Amboy's argument is twofold. First, Amboy argues that as an oversecured creditor, it is entitled to interest on its claim, along with, "any reasonable fees, costs, or charges provided for under the agreement or state statute under which the claim arose," pursuant to § 506(b). Amboy also contends that to permit the postjudgment interest to accrue at the lower legal rate would confer an impermissible benefit on the Debtors who would in essence be rewarded for having defaulted on their legal obligations and having filed multiple bankruptcies to impede Amboy's collection efforts. Thus, Amboy believes, under the present factual circumstances, equity dictates that the outstanding obligation include the interest rate contemplated in the contract, as opposed to the judgment interest rate.
Amboy further contends that the Debtors' proposed plan seeks to modify its secured claims in real property that was the Debtors' principal residence. On that basis, Amboy submits that the proposed treatment should either not be allowed pursuant to § 1322(b)(2), or should be permitted only under the limited exception found in § 1322(c)(2) allowing reinstatement and cure consistent with the terms provided in the note and mortgage.
The Debtors make three arguments in response to the Motion. First, the Debtors submit that in light of the merger of the mortgage obligations into the foreclosure judgment, the interest should be calculated at the legal rate set by New Jersey state court rule and specifically stated in the foreclosure judgment. N.J. Ct. R. R. 4:42-11. Second, the Debtors contend that Amboy should be judicially estopped from seeking the contract rate of interest. Third, the Debtors argue that Amboy is not entitled to additional fees for filing the Motion or responding to the Debtors' Cross Motion.
The Debtors have already paid Amboy the foreclosure judgment — less the disputed interest amount. The Debtors posit that under New Jersey law, the mortgage is merged into the final judgment of foreclosure and the mortgage contract is extinguished. The Debtors submit that pursuant to the merger doctrine, Amboy should be precluded from demanding payment of the aggregate loan balance beyond the amount reflected in the judgment, and that the amount necessary to redeem the foreclosure judgment is the amount of the judgment, plus lawful interest accruing thereafter.
Furthermore, the Debtors believe that Amboy's positions taken throughout both the state foreclosure and bankruptcy cases should judicially estop Amboy from seeking the contract rate of interest. Amboy did not request interest at the contract rate in its application for final judgement in foreclosure, and the final judgment does not provide for interest at the contract rate. Additionally, documents submitted by Amboy in a separate proceeding before this Court list the judgment rate as the rate of interest to be used in calculating the amount due and owing. See Cert. in Opp'n to Order to Show Cause, Michael & Kimberly Goione v. Amboy Bank , Adv. Pro. No. 18-01451, ECF No. 9.
Finally, the Debtors contend Amboy should not be awarded any additional attorneys fees in connection with this Motion. This Motion arises from Amboy's decision to ask this Court to amend the state court's foreclosure judgment to include the contractual interest rate. Amboy has stipulated to the legal interest rate in prior pleadings and has already been awarded $32,000 in...
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