This is a motion for summary judgment by the plaintiff, 79-83 Thirteenth Avenue, Ltd., seeking a judgment for deficiency on a promissory note after foreclosure of a mortgage which secured the note. The court is not concerned with the validity of the note but rather whether the defendants are entitled to have the amount owing on the note reduced by the "fair market value" or "fair value" of the premises. In July 1958 defendants signed a promissory note secured by a mortgage on the premises known as 39 Stone Street, Newark, New Jersey. Pursuant to a final judgment the plaintiff foreclosed on the mortgage. At the sheriff's sale mortgagee plaintiff purchased the encumbered property for $11,000. The amount owing on the note prior to the foreclosure was in excess of $18,000. The defendants deny that plaintiff had at any time made a demand for payment or that plaintiff had stated the amount of the alleged deficiency prior to the institution of the suit.
Defendants contend that the fair market value of the property involved at the time of the foreclosure sale was in excess of $20,000, and therefore no deficiency exists, since the property value exceeds the total amount of the debt, accrued interest, tax costs and sheriff's fee. By way of affidavit defendants indicate that the bidding was not competitive, inasmuch as there were only two active bidders -- the plaintiff
and a person referred to as a "professional bidder." There is no dispute as to the validity or execution of the note in the present proceeding.
The defendants argue that the plaintiff, noteholder-mortgagee, should be charged with the "fair market value" of the premises foreclosed and that the plaintiff is bound by the provisions of N.J.S. 2A:50-1 to 2A:50-51, more specifically, N.J.S. 2A:50-3. It is the contention of the defendants that if the mortgagee-noteholder institutes a foreclosure proceeding prior to bringing an action on a note, the mortgagee is bound by the statute which provides for a hearing to determine the fair market value of the property.
There is no contention of a bond being executed in this case. The plaintiff argues that the provisions of N.J.S. 2A:50-1 et seq. , do not apply and the statute does not control a note secured by a mortgage, and further, the sale price is conclusive of the value of the mortgaged premises for purposes of a deficiency judgment. Plaintiff further contends that the foreclosure sale was open, that the bidding was competitive, and that the defendants had every opportunity to protect their interest at the sheriff's sale, therefore, the defendants cannot at this time press a lack of fair value defense to the resulting deficiency.
The above statute is expressly concerned with foreclosure and actions on mortgage and bonds. Nowhere in the act is any provision made for mortgages securing notes, and, apparently, the statute has deliberately been limited in scope to bonds and mortgages. See Eisenberg & Spicer, "Mortgage Deficiencies in New Jersey," 3 Mercer Beasley L. Rev. 27, 28-29 (1934).
Generally, the provisions of the act have been held applicable to only bonds and mortgages for the same indebtedness and not to notes. Asbury Park & Ocean Grove Bank v. Giordano , 3 N.J. Misc. 555, 129 A. 202 (Sup. Ct. 1925), affirmed per curiam 103 N.J.L. 171 (E. & A. 1926), is authority for the proposition that a holder of a note and mortgage need not foreclose prior to the institution of an
action on the note. See also Chodosh v. Schlesinger , 119 N.J.L. 405 (E. & A. 1938). Although the case precedent is limited to holding that foreclosure is not necessary prior to proceeding on a note, the general approach seems to be that "these statutes do not apply where the obligation secured by the mortgage is a note." Silver v. Williams , 72 N.J. Super. 564, 568 (App. Div. 1962). Where the obligation is "in the form of a note, he [mortgagee] was free to proceed to recover upon and collect the obligation free from the restrictions and inhibitions of the statutes cited." Ibid.
As pointed out by Eisenberg & Spicer, supra , 3 Mercer Beasley L. Rev. , at p. 34, the law courts have followed a policy of liberal interpretation of the statute in question, the important inquiry being whether the action is being brought to enforce the same debt for which a bond and mortgage have been given. See Wildwood Title & Trust Co. v. Geisenhorner , 11 N.J. Misc. 871, 168 A. 751 (Sup. Ct. 1933). "The form and nature of the action is immaterial if, in reality, it is a proceeding to collect the same debt for which a bond and mortgage have been given. * * * A note is quite a different obligation from a bond, and is not comprehended by the terms of the statute." Id. , at p. 875. In the more than 80 years since the statutory scheme first took shape, the concern of the act has been with bond and mortgage transactions.
"Legislation which ignores * * * the problem presented by mortgages securing notes is incomplete and paves the way for future problems and difficulties. The practise of lending money upon bond and mortgage will disappear, except where made mandatory by statute. Those factors and considerations which impelled the Legislature to enact the 1880 Mortgage Act and which caused subsequent legislatures to enact the various amendments and supplements to that Act, have the same force and pressure of public policy behind them when applied to makers of notes accompanying mortgages. * * * Additional legislation is inevitable. The earlier it comes, the fewer will be the problems to solve and the injustices suffered." Eisenberg & Spicer, supra , 3 Mercer Beasley L. Rev. , at p. 41.
This case points up the anticipated problem and also indicates an inconsistent legislative approach to ...