action is primarily against the mortgaged property, an action in rem if there be no personal jurisdiction over the debtor. In the suit on the obligation, the action is primarily against the debtor, for which jurisdiction in personam is required.
In this case, as in most foreclosure cases, there is both jurisdiction in rem over the property and jurisdiction in personam over the debtor.
There thus appears to be no reason why this action could not have been merely an action in personam against the debtor for a money judgment in the amount of the obligation, just as would be the case in the New Jersey courts if the obligation had been evidenced by a note rather than by a bond.
Beyond that, while the New Jersey statute and court rule forbid joinder in the same action of a suit for foreclosure and a suit on the bond, no corresponding restriction on joinder of actions appears in any Act of Congress or in the Federal Rules of Civil Procedure.
From these conclusions, only two questions appear. One is the applicability of the "fair value" doctrine, first developed in the Lowenstein case ( Federal Title & Mortg. Guaranty Co. v. Lowenstein, 113 N.J.Eq. 200, 166 A. 538) and then embodied in part in the New Jersey statute. The answer to that question is that while a federal court might adopt a federal "fair value" doctrine along the lines of Lowenstein, such a rule would have no application in a case like this where there has been no sale at all, and where record title remains as it was before the suit.
The second question is whether any offset against the obligation should be allowed on the claim that had the United States foreclosed at an earlier date, the mortgaged property would have retained enough value to generate bids at the sale. The obvious answer is that no offset can be allowed. Although entitled to do so, the United States did not take possession before foreclosure as a mortgagee in possession. Had it done so, then if local law applied it could be charged with waste. Not having done so, it cannot be so charged under any principle cited to the court.
In fact, since the mortgagors had sold the property to a third person, taking back a mortgage of their own, then when he evidently "milked" the property they were in a position to both retake possession as mortgagees in possession and to foreclose their own mortgage, thus preserving the security and protecting against their own obligation. They chose to do neither. No equitable claim can be made, first because their own conduct was precisely the same as the conduct charged against the United States, and second because nothing is shown to indicate any financial inability to pay the obligation to the United States out of other assets.
The history of the case discloses that when the order for sale was returned unexecuted for lack of any bid, the late Judge Shaw saw the case as an ordinary suit on a bond. Evidently, because defendants advanced equitable defenses, Judge Shaw denied the then motion for summary judgment and ordered the case placed on the non-jury calendar for trial. After his death and a transfer to Judge Garth, the case evidently was not reached, and after Judge Garth left the district court and the case was again reassigned, the case was tried to judgment.
Thus, the answer to the threshold question is that there may be a money judgment on a note or bond to the United States, secured by mortgage, without foreclosure of the mortgage at all; and when there has been an attempted foreclosure which is frustrated by the absence of any bids, the money judgment may be entered but the foreclosure aspect of the suit should be dismissed.
Such a course will terminate the action with the money judgment, and will leave the record title in the same state it was before foreclosure, subject to the lien of the mortgage.
The existing money judgment will accordingly remain in full force and effect. The United States is to submit a form of modification of judgment to dismiss the foreclosure aspect.
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