W. Pleasant-CPGT, Inc. v. U.S. Home Corp.

• Citation: 233 A.3d 463,243 N.J. 92
• Decision Date: 08 July 2020
• Docket Number: 082981,A-1 September Term 2019
• Parties: WEST PLEASANT-CPGT, INC., Plaintiff-Respondent, v. U.S. HOME CORPORATION, d/b/a Lennar Homes, Defendant-Appellant.
• Court: New Jersey Supreme Court

243 N.J. 92

233 A.3d 463

WEST PLEASANT-CPGT, INC., Plaintiff-Respondent,

v.U.S. HOME CORPORATION, d/b/a Lennar Homes, Defendant-Appellant.

A-1 September Term 2019

082981

Supreme Court of New Jersey.

Argued March 3, 2020

Decided July 8, 2020

Bruce D. Greenberg argued the cause for appellant (Lite DePalma Greenberg, attorneys; Bruce D. Greenberg, Newark, on the briefs).

Deborah A. Plaia argued the cause for respondent (Deborah A. Plaia, on the briefs).

Robert M. Washburn argued the cause for amicus curiae New Jersey Builders Association (Flaster Greenberg, attorneys; Robert M. Washburn, Cherry Hill, of counsel and on the brief).

JUSTICE LaVECCHIA delivered the opinion of the Court.

Under current New Jersey statutory law, a creditor who forecloses upon the mortgage of a debtor may bring a deficiency action against that debtor if the foreclosure action does not generate sufficient funds to satisfy the debt, including interest and costs. See N.J.S.A. 2A:50-2. In response, the debtor may seek a fair market value credit, or a determination of the property's value and award of the difference between that value and the debt owed, should that value exceed the debt. See N.J.S.A. 2A:50-3. Here, the Court considers whether a fair market value credit can be sought in the absence of a deficiency action or similar proceeding as a means for a debtor to obtain a money judgment against a creditor.

In this appeal, defendant-petitioner is a creditor that foreclosed on two commercial properties, purchased the properties at sheriff's sales conducted without any objection by the debtors, and never pursued a deficiency action against the sole debtor that came to hold assigned rights encompassing both properties. This creditor seeks review of a money judgment obtained by the plaintiff debtor through a later-in-time action claiming a right to fair market value credit on the properties.

During bankruptcy proceedings, which interrupted and delayed the foreclosure proceedings, the bankruptcy court concluded that the properties’ combined appraised value was less than the debt owed to the creditor, dismissed the bankruptcy proceedings, and returned the parties to their state remedies. The resumed foreclosure processes and sheriff's sales concluded, without objection, not long thereafter. Months later, the debtor brought this after-the-fact action seeking a monetary judgment against the creditor for fair market value credit based on newly calculated appraisals of the properties looking back at the time of the sheriff's sales.

Consideration of fair market value credit has a role in preventing windfalls to creditors when a creditor forecloses on property and pursues a deficiency claim. A defensive claim for fair market value credit may be invoked to prevent a creditor from recovering more than the debt permitted. Alternatively, under our court rules, a debtor has the right to object to the sheriff's sale and may affirmatively raise a fair market value credit at that time; this debtor, however, failed to avail itself of that option. The award of an affirmative money judgment against the creditor in the instant circumstances was in error.

Informed by New Jersey's statutory foreclosure process, we conclude that the use of fair market value credit by this debtor to obtain a money judgment against a creditor -- in the absence of a deficiency claim threatened or pursued or any objection being raised at the time of the sheriff's sales -- is inconsistent with sound foreclosure processes and, moreover, inequitable in the circumstances presented. The most that should have happened, in equity, was the extinguishment of any cognizable deficiency on the creditor's judgment -- a result to which defendant accedes.

We decline to countenance this debtor's affirmative use of fair market value credit to obtain an after-the-fact money judgment against a creditor absent a timely objection to the sheriff's sale, a creditor's claim for deficiency, or some other aspect of ongoing creditor collection activity, which can provide a proper basis for the debtor's invocation of a court's equitable powers. Those circumstances are not present here. The judgment of the Appellate Division is reversed, and the matter is remanded for action consistent with this opinion.

I.

A.

We begin with the transactional and litigation background to the civil action from which this appeal arises.

On August 9, 2005, West Pleasant-CPGT, Inc. (West Pleasant), Four G's Land, LLC (Four G), and U.S. Home Corporation (U.S. Home) entered into a contract whereby U.S. Home agreed to purchase two contiguous tracts of land in Jackson, New Jersey, in exchange for the purchase price of $8,400,000. West Pleasant owned one tract (the West Pleasant Property) and Four G owned the other (the Four G Property).

Under the contract, West Pleasant and Four G intended to gain approval for a subdivision plan to develop forty-two residential lots. The contract also required West Pleasant and Four G to provide certain development approvals to U.S. Home. Pursuant to the contract, U.S. Home paid West Pleasant and Four G three advances, totaling $1,510,000. As security for the advances, West Pleasant executed a mortgage and note on the West Pleasant Property in the amount of $1,500,000. Four G did not execute a mortgage on the Four G Property.

In August 2006, after a dispute arose over West Pleasant and Four G's satisfaction of their contractual development obligations, U.S. Home sought the contract's termination and return of its $1,510,000 advance. The parties submitted the dispute to arbitration.

1. Arbitration

On December 5, 2007, an arbitration panel returned an award in favor of U.S. Home in the amount of $1,510,000, plus interest. The panel found that West Pleasant and Four G failed to satisfy their development obligations under the contract and were jointly and severally liable for the advances U.S. Home had paid. On April 2, 2008, a trial court confirmed the arbitration award, terminated the contract, and ordered West Pleasant and Four G to pay U.S. Home $1,510,000, plus interest. The Appellate Division affirmed the judgment on March 6, 2009.

When the judgment was not satisfied, U.S. Home commenced foreclosure actions against the properties. The following actions interrupted the progress of the foreclosure proceedings, which were automatically stayed.

2. Bankruptcy proceedings

On January 4, 2010, West Pleasant filed for Chapter 11 bankruptcy. Approximately two months later, Four G also filed under Chapter 11 for bankruptcy.

In West Pleasant's bankruptcy action, U.S. Home filed a motion to dismiss and for relief from the automatic stay related to the West Pleasant and Four G Properties. U.S. Home and West Pleasant executed a Consent Order on June 8, 2010 (the Consent Order), which resolved the motion to dismiss and the motion for relief from the automatic stay with respect to the West Pleasant Property. In addition to dismissing West Pleasant's bankruptcy proceeding, West Pleasant waived in the Consent Order a fair market valuation and its right to object to a sheriff's sale of the West Pleasant Property due to the judgment debt owed to U.S. Home. West Pleasant agreed to "forever waive, release and discharge [U.S. Home] ... from any and all claims, claims for relief, demands, costs, damages, liabilities, and obligations, in law or in equity," in relation to the present matter.

In Four G's bankruptcy action, U.S. Home sought relief from the automatic stay with respect to the Four G Property, on which there was no mortgage. The bankruptcy court conducted an evidentiary hearing on June 4, 2010 to address whether there was any equity in the Four G Property. U.S. Home presented expert testimony regarding the value of both the Four G and West Pleasant Properties. Four G failed to present any expert testimony after its retained expert withdrew due to a conflict of interest.

U.S. Home's expert, Peter Maher, who appraised the Four G and West Pleasant Properties as of April 2010, testified that the Four G Property had a fair market value of $806,000 and the West Pleasant Property had a fair market value of $412,500.

The court issued its decision on June 9, 2010. The court determined Maher to be a highly qualified appraiser and found no reason not to accept his valuation of the Properties. The court concluded that the Four G Property's value was $806,000 and the West Pleasant Property's value was $412,500. Because the total debt owed -- more than $1,600,000 -- exceeded the total value of the collateral of $1,218,500, the court determined that there was no equity in the Four G Property. Accordingly, the court granted relief from the automatic stay and permitted U.S. Home to "return to state court and exercise all of its rights under the laws of the State of New Jersey." Thereafter, on September 28, 2010, the court dismissed Four G's bankruptcy.

3. Foreclosure and Sheriff's Sales

As noted, U.S. Home had filed its foreclosure action against West Pleasant on April 14, 2008. Following West Pleasant's and U.S. Home's entry into their Consent Order, U.S. Home completed its foreclosure proceeding against West Pleasant on November 5, 2010, obtaining a foreclosure judgment, plus costs and fees, in the amount of $1,705,470.90.

U.S. Home executed first on the Four G Property, which was sold at sheriff's sale on December 7, 2010. U.S. Home was the only bidder and purchased the property for $100. After the sale, U.S. Home's deficiency totaled $1,736,808.87.

On January 25, 2011, the West Pleasant Property was sold at sheriff's sale. Again, U.S. Home was the only bidder, and it purchased the property for $100. After that sale, U.S. Home's deficiency totaled $1,734,485.40.

U.S. Home never proceeded with any deficiency action against West Pleasant or Four G. Nonetheless, West Pleasant and Four G commenced the affirmative litigation that gave rise to this appeal.

B.

On July 14, 2011, West Pleasant and Four G filed the instant complaint in the Law Division of Superior...