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River Edge Savings & Loan Assoc. v. Clubhouse Associates Inc.

Decided: March 30, 1981.


On appeal from the Superior Court of New Jersey, Law Division, Sussex County.

Bischoff, Milmed and Francis.

Per Curiam

This is an appeal from a deficiency judgment following a mortgage foreclosure. The issue presented is whether this action was barred by N.J.S.A. 2A:50-22(a), which prohibits any action to enforce an agreement to assume the payment of any mortgage, or of any bond secured by a mortgage, unless the mortgage was first foreclosed and the person making such agreement was made a party defendant in the foreclosure.

In June 1974 Holiday Lake, Inc. (Holiday) and its principal, Henry E. Wulster, gave a bond and mortgage to plaintiff covering two condominium units which were part of a larger development. In September 1976 a bank not involved in the instant matter began an action to foreclose a mortgage on other condominium units and related properties owned by Holiday. Plaintiff filed a separate foreclosure action in December 1976 and defaults were entered against all defendants named in that action in May 1977. Thereafter, however, plaintiff was prevented from proceeding with its action by orders entered in the unrelated foreclosure action and in bankruptcy proceedings filed by Holiday.

On April 10, 1978 defendant Clubhouse, which had not been a party to any of the preceding litigation, agreed to buy substantially all of the assets of Holiday. As part of the purchase price defendant agreed to assume the mortgage held by the plaintiff and to hold Holiday harmless from any deficiency thereon. The transaction was conditioned upon obtaining approvals of the sale and financing provisions from the courts in which the bankruptcy proceeding and the foreclosure action not brought by plaintiff were then pending. After those approvals had been given plaintiff moved to vacate the stays which had been entered against its own foreclosure action. Although defendant was not a party to any of the litigation, it received notice of plaintiff's motions.

While plaintiff's motions were pending, plaintiff agreed with Holiday, among other things, that if Holiday included specific language in its deed to defendant to assure that defendant would be liable for the amount of any deficiency after plaintiff completed its foreclosure action, then plaintiff would not seek any judgment for such deficiency against Holiday or Wulster. On November 22, 1978 the receivers for Holiday signed a deed conveying substantially all of Holiday's assets to defendants which contained the language requested by plaintiff.

About two months before the deed was executed the orders staying plaintiff's foreclosure action were vacated. Defendant received copies of the orders vacating the stays. A final judgment foreclosing all equity of redemption in the mortgage held by plaintiff was entered on November 27, 1978. On the following day, November 28, 1978, the deed conveying Holiday's assets to defendant was recorded. The condominium units covered by plaintiff's mortgage were sold to plaintiff at a sheriff's sale for $100 each. Plaintiff filed this deficiency action, asserting a right to enforce the bond and mortgage against defendant, and also asserting that it was a third-party beneficiary of the assumption agreement between defendant and Holiday.

At the end of plaintiff's case defendant moved to dismiss the complaint, based on N.J.S.A. 2A:50-22(a). The trial judge denied the motion on the ground that the statute was designed to insure that defendants in deficiency actions had been given notice of the preceding foreclosure. He reasoned that since defendant in this case had been given notice of the foreclosure action, and knew that plaintiff intended to rely on defendant's assumption agreement, well before the foreclosure sale, the purpose of the statute had been substantially satisfied. Defendant challenges that ruling by this appeal.

The trial judge also determined the amount of the credit defendant was entitled to for the fair market value of the premises at the time of the sheriff's sale, and the amount of the resulting deficiency to which plaintiff was entitled. Those amounts are not contested on this appeal.

When this action was filed N.J.S.A. 2A:50-22 provided in part:

No action to enforce an agreement, express or implied, to assume the payment of any mortgage or of any bond secured by a mortgage, shall be maintained against a person making such agreement unless the mortgage shall have been first foreclosed, or extinguished by the foreclosure of a ...

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