N.A. v. Hough

• Court: New Jersey Superior Court
• Citation: US Bank N.A. v. Hough, 416 N.J.Super. 286, 3 A.3d 1251 (N.J. Super. 2010)
• Decision Date: 14 September 2010
• Parties: US BANK, N.A., Plaintiff-Respondent, v. Nikia HOUGH, Defendant-Appellant, and Mr. Hough, Husband of Nikia Hough; New Jersey Department of Community Affairs; Council on Affordable Housing; Township of Piscataway; New Jersey Housing and Mortgage Finance Agency; State of New Jersey; and the Commons at Piscataway, Inc., Defendants.

416 N.J.Super. 286

3 A.3d 1251

US BANK, N.A., Plaintiff-Respondent,

v. Nikia HOUGH, Defendant-Appellant,andMr. Hough, Husband of Nikia Hough; New Jersey Department of Community Affairs; Council on Affordable Housing; Township of Piscataway; New Jersey Housing and Mortgage Finance Agency; State of New Jersey; and the Commons at Piscataway, Inc., Defendants.

Superior Court of New Jersey,Appellate Division.

Argued Jan. 12, 2010.

Reargued April 13, 2010.

Decided Sept. 14, 2010.

Henry A. Loeb, Manville, argued the cause for appellant (Blumberg & Rosenberg, P.A., attorneys; Mr. Loeb, on the brief).

Vladimir Palma, Mt. Laurel, argued the cause for respondent (Phelan Hallinan & Schmieg, PC, attorneys; Mr. Palma, on the brief).

Geraldine Callahan, Deputy Attorney General, argued the cause for amicus curiae Office of the Attorney General (Paula T. Dow, Attorney General, attorney; Nancy Kaplen, Assistant Attorney General, of counsel; Ms. Callahan, on the statement in lieu of brief).

Before Judges FUENTES, GILROY and SIMONELLI.

The opinion of the court was delivered by

GILROY, J.A.D.

This is a real property foreclosure action. Plaintiff US Bank, N.A. seeks to foreclose upon defendant Nikia Hough's residential condominium unit located in the Township of Piscataway (the Township). The condominium unit forms part of the Township's affordable housing obligation and, as such, is subject to the Uniform Housing Affordability Controls (UHAC) adopted by defendant New Jersey Housing and Mortgage Finance Agency (HMFA), N.J.A.C. 5:80-26.1 to -26.26. Hough appeals from the June 12, 2009 order that denied her motion seeking to “void judgment of foreclosure and to dismiss plaintiff's complaint with prejudice.”

The primary question presented is whether a commercial lender, which makes a loan secured by a mortgage on an affordable housing unit in excess of the amount permitted by N.J.A.C. 5:80-26.8(b), is prohibited from seeking to foreclose the mortgage. We answer the question in the affirmative, holding that the mortgage is void pursuant to N.J.A.C. 5:80-26.18(e). Accordingly, we reverse.

I.

We briefly state the procedural history and facts leading to this appeal. On January 14, 2004, Hough purchased the condominium unit for $68,142.86. To fund part of the purchase price, Hough borrowed $61,329 from Wells Fargo Home Mortgage, Inc., and secured the loan by executing a mortgage in favor of Wells Fargo. Because the condominium formed a part of the Township's affordable housing obligation, the deed contained the following restriction:

The owner's right title and interest in this unit and the use, sale and resale of this property are subject to the terms, conditions, restrictions, limitations and provisions as set forth in Ordinance number 88-34, as amended, which Ordinance is entitled “An Ordinance Establishing and Creating Regulations Governing the Conduct of the Purchase and/or Rental of Affordable Housing in the Township of Piscataway[,”] ... as well as those terms, conditions, restrictions, limitations, and provisions as set forth in the “Affordable Housing Plan of the Commons at Piscataway” dated April 3, 1991 which plan was filed in the Office of the Clerk of Middlesex County ... on June 20, 1991. Both are on file with the Piscataway Township Department of Planning and Community Development.

The deed was recorded in the Middlesex County Clerk's Office on March 15, 2004.

On March 25, 2005, Hough refinanced the condominium unit by borrowing $108,000 from Mortgage Lenders Network, USA, Inc. At the time of the mortgage transaction, the maximum allowable resale price of the condominium unit, pursuant to N.J.A.C. 5:80-26.6, was approximately $68,735.41. ¹ Hough executed a promissory note in favor of Mortgage Lenders, secured by a mortgage on the condominium unit. The mortgage was recorded in the Middlesex County Clerk's Office on April 14, 2005. Hough used the mortgage proceeds to satisfy the Wells Fargo purchase money mortgage then in the amount of $62,795.10, and for other personal unsecured debts, and real property tax liens. Hough netted $20,080.45 from the mortgage refinance. The new mortgage included the same affordable housing restriction contained in the January 14, 2004 deed. On February 1, 2007, Hough defaulted on the mortgage.

On June 12, 2007, Mortgage Lenders filed a complaint in foreclosure against Hough. ² On July 20, 2007, Mortgage Lenders assigned the mortgage to plaintiff. On July 8, 2008, plaintiff filed an amended complaint adding as defendants: the New Jersey Department of Community Affairs (DCA), the Council on Affordable Housing (COAH), the Township, HMFA, and Hough's condominium, The Commons at Piscataway, Inc. Plaintiff served Hough with the amended complaint and summons on August 13, 2008. Plaintiff entered default against defendants on September 18, 2008.

The Township filed an answer alleging priority over plaintiff's mortgage based on the deed restriction. On December 15, 2008, plaintiff and the Township filed a consent order under which the Township withdrew its answer; and plaintiff agreed to prosecute the action subject to the affordable housing restriction referenced in the January 14, 2004 deed, to provide the Township with notice of any sheriff's sale, and to request the court return the matter to the Office of Foreclosure as an uncontested action.

On January 26, 2009, plaintiff filed and served a notice for entry of final judgment. On March 9, 2009, plaintiff filed proofs in support of its request for entry of judgment. In the interim, Hough filed a motion seeking to void the judgment of foreclosure and to dismiss the complaint with prejudice, contending that the mortgage violated the UHAC regulations, as it secured a loan in excess of the amount permitted pursuant to N.J.A.C. 5:80-26.8(b).

On April 3, 2009, mistakenly believing that final judgment had already been entered, the trial court denied the motion, concluding that vacating the judgment would improperly bestow a benefit upon Hough because she had been aware of the affordable housing restrictions when she borrowed the money, paid off the Wells Fargo mortgage, and otherwise used or retained the balance of the mortgage proceeds. It is from this order that Hough appeals.

The order appealed from is not a final judgment. A “final judgment in an action to foreclose a real estate mortgage fixes the amount due under the mortgage and directs the sale of the real estate to raise funds to satisfy the amount due.” Eisen v. Kostakos, 116 N.J.Super. 358, 365, 282 A.2d 421 (App.Div.1971). Accordingly, the order appealed from is interlocutory, as it is not final as to all parties and all issues. Janicky v. Pt. Bay Fuel, Inc., 396 N.J.Super. 545, 549-50, 935 A.2d 803 (App.Div.2007). Nonetheless, because of the importance of the issue presented, we grant leave to appeal nunc pro tunc. Gill v. N.J. Dep't of Banking & Ins., 404 N.J.Super. 1, 8, 960 A.2d 397 (App.Div.2008).

Hough initially argued that we should reverse and declare only the mortgage void, pursuant to N.J.A.C. 5:80-26.18(e). In countering plaintiff's assertion that she would receive a windfall if the court were to void the entire indebtedness, Hough contended that plaintiff's assertion “ignore[d] that it is only [plaintiff's] mortgage that is void under the COAH regulation at issue and not the [n]ote or therefore the underlying debt. Rather, the regulation unequivocally establishes a reasoned and non-confiscatory penalty for a violation of its requirement; a loss of the obligation's secured status.”

Questioning whether N.J.A.C. 5:80-26.18(e) requires voiding only the mortgage or whether it also requires voiding the indebtedness, we invited the Attorney General to address the issue on behalf of the HMFA. Consistent with Hough's initial assertion, the Attorney General argued it is only “the mortgage secured by the affordable property that offends the regulation and is void as against public policy.” Nonetheless, contrary to her initial position, Hough contended at re-argument that we should not only void the mortgage, but also declare the underlying indebtedness void as against public policy.

II.

The January 14, 2004 deed restriction placed lenders on constructive notice that the condominium unit was part of the Township's Mount Laurel ³ affordable housing obligation subject to the UHAC regulations. ⁴ The amount of indebtedness that can legally be secured by a mortgage on an affordable housing unit is governed by N.J.A.C. 5:80-26.8, which provides:

(a) Prior to incurring any indebtedness to be secured by an ownership unit, the owner shall submit to the administrative agent a notice of intent to incur such indebtedness, in such form and with such documentary support as determined by the administrative agent, and the owner shall not incur any such indebtedness unless and until the administrative agent has determined in writing that the proposed indebtedness complies with the provisions of this section.

(b) With the exception of original purchase money mortgages, during a control period, neither an owner nor a lender shall at any time cause or permit the total indebtedness secured by an ownership unit to exceed 95 percent of the maximum allowable resale price of that unit, as such price is determined by the administrative agent in accordance with N.J.A.C. 5:80-26.6(c).

“Administrative agent” is defined in the regulations as meaning “the entity responsible for administering the affordability controls of this subchapter with respect to specific restricted units, as designated pursuant to N.J.A.C. 5:80-26.14.” N.J.A.C. 5:80-26.2.

The “maximum allowable resale price” of an affordable housing unit is determined in accordance with N.J.A.C. 5:80-26.6:

(c) The initial purchase price of a restricted ownership unit financed under [Urban Home Ownership Recovery Program] or [Market Oriented Neighborhood Investment Program] unit shall be calculated so that the monthly carrying costs of the unit,...