Columbia Bank

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DOCKET NO. A-4690-13T1 (N.J. Super. App. Div. Jan. 28, 2016)

DOCKET NO. A-4690-13T1


COLUMBIA BANK, Plaintiff-Respondent, v. GREGORY P. BAIRD and EDWARD I. WOLFE, Defendants-Respondents, and LAWRENCE S. BERGER, Defendant-Appellant.

Gregory J. Cannon argued the cause for appellant (Berger & Bornstein, LLC, attorneys; Mr. Cannon, on the briefs). Stephen V. Falanga argued the cause for respondent Columbia Bank (Connell Foley LLP, attorneys; Mr. Falanga, of counsel; Sydney J. Darling, on the brief).

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges O'Connor and Rothstadt. On appeal from Superior Court of New Jersey, Chancery Division, Morris County, Docket No. F-22102-13. Gregory J. Cannon argued the cause for appellant (Berger & Bornstein, LLC, attorneys; Mr. Cannon, on the briefs). Stephen V. Falanga argued the cause for respondent Columbia Bank (Connell Foley LLP, attorneys; Mr. Falanga, of counsel; Sydney J. Darling, on the brief). The opinion of the court was delivered by ROTHSTADT, J.A.D.

In this foreclosure action, defendant Lawrence S. Berger appeals from the Chancery Division's March 3, 2014 order granting plaintiff Columbia Bank's (Columbia) motion for reconsideration of the court's January 23, 2014 order, and reinstating the previously-vacated entry of default against Berger. He also appeals from the ensuing Final Judgment in Foreclosure.

On appeal, Berger argues the Chancery Division judge erred in reinstating the entry of default because he was entitled to raise defenses under New Jersey's Fair Foreclosure Act, N.J.S.A. 2A:50-53 to -68 (FFA), including the defense that, as the "equitable owner of the property, [he] was entitled to cure the defaults under plaintiff's mortgage loans pursuant to the [FFA]." Berger also contends that the final judgment should be vacated because it was based upon the improper entry of default against him. Columbia disagrees, arguing that the FFA does not apply "because the mortgages at issue were not residential mortgages," and that, even if it did, Berger is "not entitled to [its] protections" because he does not qualify as a "debtor" under the statute.

The FFA was adopted in 1995 with the goal that "homeowners . . . be given every opportunity to pay their home mortgages, and thus keep their homes." Fair Foreclosure Act, L. 1995, c. 244, § 2 (codified at N.J.S.A. 2A:50-54). In pursuit of this goal, the FFA established several procedures to be followed in the event of foreclosure, including a requirement that the "residential mortgage lender" send a notice of its intent to foreclose to the mortgagor at least thirty days before filing a foreclosure complaint. See N.J.S.A. 2A:50-56(a). The mortgage lender must strictly comply with this requirement. See EMC Mortg. Corp. v. Chaudhri, 400 N.J. Super. 126, 138 (App. Div. 2008); see also N.J.S.A. 2A:50-61.

We have considered the parties' arguments in light of our review of the record and applicable legal principles. We affirm.

The material facts were not in dispute and can be summarized as follows.

Columbia filed this foreclosure action against its borrowers, defendants Gregory P. Baird and Edward I. Wolfe, after they defaulted on their obligations under two loans, a residential purchase money mortgage and a home equity loan. The loans, totaling approximately $1.5 million, were both made in 2006 and secured by a single-family home owned by Baird. At the time Columbia made the loans, Baird and Wolfe occupied the home.

Baird and Wolfe did not dispute Columbia's right to foreclose and have not participated in this appeal.

Berger was not a debtor of Columbia at any time, and did not own or occupy the mortgaged property. Rather, he was a tenant who had contracted to purchase the home from Baird, and the third mortgagee of the premises, subordinate to Columbia's two loans. His status as tenant and mortgagee arose from a series of agreements he and Baird entered into prior to the filing of Columbia's complaint. Specifically, in November 2007, Berger paid Baird approximately $250,000 toward Berger's purchase of the home pursuant to a contract under which title to the home was scheduled to close after five years, or sooner at Berger's discretion. Berger's down payment was secured by a mortgage given to him by Baird, and the purchase contract was incorporated into a lease and memorialized in a recorded memorandum of contract.

The five-year lease gave Berger the right to possession of the home and required him to make monthly rent payments in an amount equal to Baird's monthly obligations, including the amounts Baird and Wolfe owed to Columbia under their notes. In order to facilitate the transactions, Berger and Baird set up a bank account into which Berger was to deposit the rent payments, which Baird was to then withdraw for payment to Columbia. Berger claimed, however, that he reserved the right to pay Columbia directly, rather than through the bank account.

The contract to purchase the home provided that Berger's down payment and all payments he made under the lease were to be applied toward an agreed-upon purchase price of $1.875 million.

Although not material to our decision, we observe that paragraph 5(b) of the lease only permitted Berger to forgo deposits into the account if the account became "subject to levy by creditors of" Baird.

Berger's purpose in acquiring the property was to provide a residence for a friend who was disabled. After Berger took possession of the home, he renovated it to accommodate his friend's needs. According to Berger, he spent $250,000 to complete the renovations. Although Berger was the tenant and made the renovations, he never lived in the home, but instead allowed his friend to live there.

From 2008 to 2013, Berger made the payments required under the lease. By Berger's calculations, these payments totaled approximately $600,000 as of February 2013, at which time Berger could no longer sustain them. When Berger stopped making the rent payments, Baird stopped making the mortgage payments to Columbia and the foreclosure ensued.

Columbia joined Berger in the foreclosure action as the holder of a subordinate mortgage lien and a contract-purchaser of the property. According to Berger, he was not properly served with Columbia's complaint and a default was entered by the court without notice to him. After Berger received a copy of the filed default, he moved for it to be vacated, arguing he was entitled to the protections and remedies of the FFA. Columbia opposed the motion by letter brief dated December 30, 2013. However, on January 23, 2014, the court granted Berger's motion as unopposed.

Before the court entered its order vacating the default, Berger, "as contract-purchaser and tenant," wrote to Columbia. Citing the FFA, N.J.S.A. 2A:50-58(a)(2), Berger "certif[ied] that there [was] a reasonable likelihood that the debtor(s) [would] be able to provide payment necessary to cure default within 45 days of the date" Columbia served its notice of intent to apply for entry of final judgment pursuant to N.J.S.A. 2A:50-58(a)(1). According to Berger, Columbia refused to provide the required information, stating it could give it only to its borrowers, Baird and Wolfe. However, Baird refused to request the information or otherwise cooperate in Berger's efforts.

When the court entered its January 23, 2014 order granting Berger's motion to vacate the entry of default, Columbia immediately moved for reconsideration, arguing the court mistakenly overlooked its opposition to Berger's motion. Berger opposed Colombia's motion for reconsideration but, on March 4, 2014, the court granted it and reinstated the default against Berger. Judge Stephen C. Hansbury issued a written decision explaining the court's reasons for granting Columbia the relief it sought.

In his decision, Judge Hansbury began by recognizing that reconsideration was warranted because he did not consider Columbia's opposition to Berger's original motion. The judge then turned to the underlying motion and reviewed the law applicable to the court's consideration of a motion to vacate a default. He quoted from our decision in Trs. of Local 478 v. Baron Holding Corp., 224 N.J. Super. 485, 498 (App. Div. 1998), observing that in order to grant a motion to vacate a default the defaulting party must show good cause and "at the very least . . . the presence of a meritorious defense worthy of judicial determination."

After determining Berger received the complaint and knew of the proceedings, Judge Hansbury concluded that setting aside the entry of default was not warranted because Berger failed to show good cause and a meritorious defense to the foreclosure action. Citing to N.J.S.A. 2A:50-55, N.J.S.A. 2A:50-57(a), and the court's opinion in Sturdy Sav. Bank v. Roberts, 427 N.J. Super. 27, 32 (Ch. Div. 2012), the judge reasoned that, while Berger's purported defenses relied upon the protections of the FFA, "Berger has no rights under the [statute]," including the right to a notice of intent to foreclose, because he "is not the debtor/borrower, does not own the premises and does not reside at the premises," and instead was only a subsequent lien holder.

In his ensuing order, Judge Hansbury directed that Berger's answer be stricken and the matter proceed as uncontested. On April 29, 2014, the court entered the final judgment of foreclosure. This appeal followed.

Berger ultimately purchased the property at the sheriff's sale for $1.75 million dollars, which he claimed was $300,000 more than the final judgment and $1.25 million more than the amount necessary to cure Baird's and Wolfe's default.

Berger argues that, as an equitable owner of the property authorized by the lease to make payments to Columbia, he is entitled to the protections and remedies of the FFA, and, therefore, that his asserted defenses were meritorious and warranted the court vacating the entry of default. We disagree, essentially for the reasons stated by Judge Hansbury in his well-reasoned decision. We add only the following comments.

As Judge Hansbury concluded, the FFA does not provide Berger a meritorious defense to Columbia's foreclosure action. In addition to the fact that Berger never occupied the premises, see Sturdy Savs. Bank, supra, 427 N.J. Super. at 37, he clearly was not a debtor. See N.J.S.A. 2A:50-55. His claimed status as an "equitable owner" does not change that fact.

The FFA expressly limits its protections to "residential mortgage debtors," as defined in the statute, which Berger was not. See N.J.S.A. 2A:50-55 ("'Residential mortgage debtor' or 'debtor' means any person shown on the record of the residential mortgage lender as being obligated to pay the obligation secured by the residential mortgage."). Therefore, he was not entitled to assert any FFA-based defenses to the underlying foreclosure action. See, e.g., N.J.S.A. 2A:50-56(a) ("[T]the residential mortgage lender shall give the residential mortgage debtor notice of [its] intention [to foreclose] at least 30 days in advance of such action as provided in this section" (emphasis added)); see also Gonzalez v. Wilshire Credit Corp., 411 N.J. Super. 582, 590 (App. Div. 2010) (stating the FFA "protects only 'a residential mortgage debtor,' [as] defined in N.J.S.A. 2A:50-55"), aff'd, 207 N.J. 557 (2011).

Further, without being authorized by Baird and Wolfe to act on their behalf, Berger could not exercise the statutory right to cure. See N.J.S.A. 2A:50-57(a) (providing that "the debtor, or anyone authorized to act on the debtor's behalf, shall have the right at any time, up to the entry of final judgment or the entry by the office or the court of an order of redemption . . . to cure the default, de-accelerate and reinstate the residential mortgage by tendering the amount or performance specified in subsection b.").

We reject Berger's contention that the lease provision regarding his payment of rent somehow authorized him to exercise these rights, especially given that there is nothing in the record to indicate the debtors informed Columbia that Berger was so authorized, by the lease or otherwise. Instead, the record clearly indicates that Baird and Wolfe would not cooperate with Berger's attempts to cure. --------

There being no basis for the only "meritorious defense" Berger asserted in support of vacating the entry of default, the Chancery Division correctly reconsidered its earlier decision and reinstated the default, and entered a judgment accordingly. See Pressler & Verniero, Current N.J. Court Rules, comment on R. 4:43-3 (2016) ("[T]he showing of a meritorious defense is a traditional element necessary for setting aside both a default and a default judgment . . . ."); see also U.S. Bank Nat'l Ass'n v. Guillaume, 209 N.J. 449, 469 (2012) (observing that a meritorious defense is necessary because "[t]he time of the courts, counsel and litigants should not be taken up by such a futile proceeding." (quoting Schulwitz v. Shuster, 27 N.J. Super. 554, 561 (App. Div. 1953)).

To the extent we have not specifically addressed any of Berger's remaining arguments, we find them to be without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.


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