By Brian R. Lehrer, Esq.

Evidence/Lost Note

In a case involving a foreclosure action, the Supreme Court recently held that the plaintiff assignee of a Mortgage was entitled to enforce it against the defendant event though the plaintiff had misplaced the Note, and further held that the plaintiff’s Lost Notice Affidavit was admissible as a business record under N.J.R.E. 803(c)(6). Investors Bank v. Torres, 243 N.J. 25 (2020).

In 2005, defendant, Javier Torres, gave a mortgage to CitiMortgage, Inc. CitiMortgage discovered it had lost the original Note, but it retained a digital copy setting forth its terms. It assigned the Mortgage and its interest in the Note to the plaintiff, Investors Bank.

Investors Bank sought to foreclose on the Note, but defendant challenged its right to enforce it based on the loss of the original. The trial Court entered summary judgment in favor of the plaintiff. Ultimately, the Supreme Court affirmed.

In a somewhat technical opinion, the Supreme Court held that two statutes addressing assignments of contracts, N.J.S.A. 2A:25-1 and N.J.S.A. 46:9-9, as well as common law assignment principles gave defendant the right to enforce the Note and Mortgage as an assignee. It further noted that N.J.S.A. 12A:3-309 of New Jersey’s version of the Uniform Commercial Code, which clearly gave CitiMortgage the right to enforce the Mortgage, did not preclude enforcement by the assignee of a Mortgage and the transferee of a lost Note.

Finally, the Court held that plaintiff’s Lost Note Affidavit qualified as a business record under N.J.R.E. 803(c)(6). The Lost Note Affidavit was signed by a CitiMortgage representative before a notary public and was less properly authenticated under N.J.R.E. 901 and thus admissible as a properly authenticated business record.

Foreclosure/Fair Market Value Credit

In a case involving a strange action where a debtor brought an action against a creditor, the New Jersey Supreme Court held that the use of fair market value credit by a debtor to obtain a money judgment against a creditor was improper, and that the most that should have happened in equity was the extinguishment of any cognizable deficiency on the creditor’s judgment. West Pleasant-CPGT, Inc. v. U.S. Home Corp., 243 N.J. 92 (2020).

Plaintiff, West Pleasant, and defendant, U.S. Home, entered into a contract to purchase property. West Pleasant executed a Mortgage and Note on its property and ultimately U.S. Home sought a termination of the contract and was awarded a judgment at arbitration. When the judgment was not satisfied, U.S. Home commenced a foreclosure action and obtained a foreclosure judgment. The defendant took back two properties at the foreclosure sale and did not file a deficiency action.

After a somewhat involved procedural dance which involved bankruptcy proceedings and consent orders, plaintiff filed an action against U.S. Home seeking a money judgment because a fair marker value credit for the involved properties exceeded the value of the debt owed to U.S. Home. The Supreme Court held that the action should be dismissed and “declined to countenance” a 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 could provide a proper basis for the invocation of a Court’s equitable powers.

Pursuant to N.J.S.A. 2A:50-2, after the foreclosure of a mortgage, the creditor may bring a deficiency action if the foreclosure action fails to generate an amount sufficient to satisfy the debt. Pursuant to N.J.S.A. 2A:15-3, a debtor may file an Answer in the action for deficiency disputing the amount and the Court shall take evidence and determine the fair market value of the property. The legislature intended the fair market value credit as a protection for mortgagors in deficiency actions to be used as a shield not as a sword. Additionally, pursuant to R. 4:65-5, a mortgagor may object to the Sheriff’s sale and seek a fair market value credit at the time.

The Court noted that prior to filing the affirmative claim, the plaintiff had the ability to advance a fair market value objection during the Sheriff’s sale proceedings and it failed to do so. The Court noted that the appropriate result was to dismiss the action and remand to the trial Court for the entry of a judgment declaring the debt fully satisfied, as the defendant had conceded at the outset.

DISCLAIMER: This Alert is designed to keep you aware of recent developments in the law. It is not intended to be legal advice, which can only be given after the attorney understands the facts of a particular matter and the goals of the client.