United Sav. & Loan Ass'n of Trenton, N. J. v. Scruggs

• Citation: 436 A.2d 559,181 N.J.Super. 52
• Parties: The UNITED SAVINGS & LOAN ASSOCIATION OF TRENTON, N. J., a Corp. of the State of N. J., Plaintiff, v. Annette SCRUGGS, Single, et al., Defendants.
• Decision Date: 07 October 1981
• Court: New Jersey Superior Court

Page 52

181 N.J.Super. 52

436 A.2d 559

The UNITED SAVINGS & LOAN ASSOCIATION OF TRENTON, N. J., a Corp. of the State of N. J., Plaintiff, v. Annette SCRUGGS, Single, et al., Defendants.

Superior Court of New Jersey, Chancery Division Mercer County.

Decided Oct. 7, 1981.

Frederic J. Schragger, Trenton, for plaintiff (Schragger, Schragger & Lavine, Trenton, attorneys).

No appearance for defendant.

DREIER, J. S. C.

On July 28, 1978 defendant Annette Scruggs executed a bond and a mortgage in favor of plaintiff United States Savings and Loan Association to secure a debt of approximately $14,000. The mortgage was duly recorded on the same day. Alleging that Miss Scruggs had defaulted on payments due on the obligation plaintiff recently brought this action to foreclose the mortgage. Immediately subsequent to filing its complaint, and in accordance with customary practice, plaintiff filed a notice of lis pendens pursuant to N.J.S.A. 2A:15-9.

Plaintiff is now before the court on motion for an order permitting the filing of a nonstatutory notice of lis pendens as a result of a decision of the United States District Court holding the procedures set out in the New Jersey lis pendens statute, N.J.S.A. 2A:15-6 et seq., to be unconstitutional under the Due Process clause of the United States Constitution. Chrysler Corp. v. Fedders Corp., 519 F.Supp. 1252, 1264 (D.N.J.1981). ¹ In the alternative, plaintiff seeks a declaration that its original notice of lis pendens was and is effective. The circumstances of the within action, however, are distinguishable from those of Chrysler and do not give rise to the same due process concerns; thus, the statutory notice of lis pendens already filed by plaintiff is here held to be valid.

As Judge Ackerman noted in Chrysler, the doctrine of lis pendens prevents a party to litigation from conveying the property in dispute in derogation of the potential rights of his opponent in the land and in obstruction of the administration of justice. 519 F.Supp. at 1260. Filing a notice of lis pendens serves as constructive notice to the world that an action involving real property is pending, so that any subsequent purchaser or lienor of that property will take subject to the outcome of the litigation. N.J.S.A. 2A:15-7; Wendy's of So. Jersey, Inc. v. Blanchard Management Corp., 170 N.J.Super. 491, 496, 406 A.2d 1337 (Ch.Div.1979).

The New Jersey statute permits a notice of lis pendens to be filed on the basis of plaintiff's unverified complaint, nor need the notice itself be in affidavit form. N.J.S.A. 2A:15-6. Once filed, the notice of lis pendens may not be discharged under the statute except by: (1) plaintiff's failure to prosecute the action diligently, N.J.S.A. 2A:15-10; (2) the passage of three years from the date of filing, N.J.S.A. 2A:15-11; (3) final judgment in favor of defendant, N.J.S.A. 2A:15-14; (4) defendant's posting a bond sufficient to secure plaintiff's claim, N.J.S.A. 2A:15-15; or (5) complete and final satisfaction of the claim against defendant, or by settlement or abandonment of the action. N.J.S.A. 2A:15-17.

The fixed and persistent nature of the notice has been underscored by two recent cases: Polk v. Schwartz, 166 N.J.Super. 292, 399 A.2d 1001 (App.Div.1979), and O'Boyle v. Fairway Prod., Inc., 169 N.J.Super. 165, 404 A.2d 365 (App.Div.1979). As noted in Polk, unless the complaint clearly recites a cause of action which, under the statute, does not permit the filing of a notice of lis pendens (e. g., an action to recover judgment for money or damages only, N.J.S.A. 2A:15-6), it is not appropriate for a defendant to move directly to discharge the notice. 166 N.J.Super. at 299, 399 A.2d 1001. Rather, defendant should move "either to dismiss the complaint or pertinent counts thereof for failure to state a claim upon which relief can be granted or for summary judgment, which motion would (include) a request to discharge the notice of lis pendens." Id. at 299-300, 399 A.2d 1001.

O'Boyle added this footnote to Polk :

The adversely affected party would be entitled to have the notice of lis pendens discharged if on motion he could demonstrate and obtain a determination by partial summary judgment to the effect that plaintiff in fact and in law had no right to a lien or to a claim affecting the title to the realty in question but only, if at all, some different claim or right against the defendant as for damages. (169 N.J.Super. at 167, 404 A.2d 365).

N.J.S.A. 2A:15-6 provides that a notice of lis pendens may be filed where the object of the action is "to enforce a lien ... upon real estate or to affect the title to real estate or a lien or encumbrance thereon...." In General Electric Credit Corp. v. Winnebago of N.J., 149 N.J.Super. 81, 373 A.2d 402 (App.Div.1977), this language was construed to permit filing a notice of lis pendens not only to enforce an existing lien, but also to establish an interest or right in real property. Our statute providing for the filing of a notice of lis pendens ... was not adopted to limit the common law doctrine of lis pendens to situations where an existing lien exists. The express language "to affect the title to real estate," negates even the suggestion of any such statutory purpose. (Id. at 85-86, 373 A.2d 402).

See, also, 54 C.J.S., Lis Pendens, § 9 at 577.

Filing a notice of lis pendens therefore may serve two separate and distinct purposes. Where plaintiff has an existing lien or interest of record, the notice of lis pendens provides constructive notice to the world that an action to enforce such lien or interest has been begun. In this situation the filing serves a notice function only. However, General Electric Credit Corp., supra, makes it clear that a plaintiff seeking to obtain title to real estate or to impose a lien or restriction thereon may likewise file a notice of lis pendens. The filing then takes on a substantive aspect as well, giving notice to the world not merely that a pre-existing lien is being foreclosed but that a new lien has been asserted which will be deemed superior to all subsequently obtained interests in the property.

In Chrysler the latter situation obtained. There, an out-of-state plaintiff brought an action whose favorable outcome would affect the title of defendant Fedder's New Jersey property, even though at the commencement of the suit Chrysler had no present vested interest, claim or lien in or on the property it sought to charge. Apparently concerned about its eventual ability to recover a money judgment against Fedders, Chrysler filed a notice of lis pendens as to defendant's real estate. Fedders, on its part, was seeking to sell the subject property but, because of the notice of lis pendens, could not convey title free from plaintiff's claims. Fedders argued that the lis pendens must be discharged because it operated to deprive Fedders of its property without due process of law.

The Chrysler court weighed plaintiff's interest in its ability to recover on a potential judgment against defendant's property and the governmental interest in assuring court control over the subject matter of real property disputes, against the severity of the restriction imposed by the filing of the notice of lis pendens on defendant's ability to alienate its property freely. See Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976). On balance, Judge Ackerman found the New Jersey lis pendens statute to be both facially and as applied in violation of the due process requirements of the 14th Amendment of the United States Constitution.

... (T)he present procedures do not satisfy the requirements of due process, either on their face or in the circumstances of the case before me, because of their failure to require the plaintiff to make even a minimal showing of entitlement to the rights created by the filing of the notice of lis pendens at a meaningful time either before or closely following the filing of the notice. (519 F.Supp. at 1264).

In effect, the very filing of the notice of lis pendens with the county clerk or register of deeds and mortgages amounts to a taking of defendant's property by state action, since it "destroys the ability of a property holder to convey marketable title if the litigation has any possibility of success." 519 F.Supp. at 1260. See 13A N.J. Practice (Lieberman, Abstracts and Titles ) (3 ed. 1966), § 172 at 218-219. Since the statute provides for neither a prefiling nor an effective and rapid postfiling hearing at which defendant might challenge plaintiff's claim, the property owner's only other recourse is to move to dismiss or for summary judgment. As Judge Ackerman further noted in Chrysler, this requires the property owner to bear a heavy burden in order to prevail. See Muniz v. United Hospitals Med. Center, 153 N.J.Super. 79, 379 A.2d 57 (App.Div.1977); Judson v. Peoples Bank & Trust Co., 17 N.J. 67, 110 A.2d 24 (1954). Thus, when tested against the procedural protections against arbitrary seizures mandated in Sniadach v. Family Financial Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969), and the line of U.S. Supreme Court cases which followed, ² the New Jersey statute was found in Chrysler to be invalid, in that it permitted plaintiff in effect to obtain a nonjudicial attachment of defendant's property, without affording defendant the possibility of rapid judicial relief.

Since Chrysler was heard and decided by the United States District Court, its holding is not binding on New Jersey state courts. State v. Shapiro, 122 N.J.Super. 409, 436, 300 A.2d 595 (Law Div. 1973); State v. Coleman, 46 N.J. 16, 36, 214 A.2d 393 (1965). Nevertheless, because the Chrysler decision is grounded in federal constitutional issues, and has ramifications which could profoundly affect mortgage and tax sale certificate foreclosures as well as other lien enforcement proceedings in the State, it is necessary to examine the effect of Chrysler on the present foreclosure...