This is a mortgage foreclosure. Plaintiff is the assignee of the original lender and has moved for summary judgment. Defendant/mortgagor opposes the motion based on alleged fraud and misrepresentation regarding the original loan. Since plaintiff claims to be a holder in due course, the primary issue is whether plaintiff's status as an assignee insulates it from the wrongdoing of its predecessor/mortgagee. For the reasons expressed below, I have answered that question in the negative and have determined to deny plaintiff's motion.*fn1
On May 27, 1985 the defendant Vienor Ltd. Corporation, purchased Unit # 2204, Tower I, in the Ocean Club Condominium in Atlantic City, New Jersey. As part of that purchase, defendant executed and delivered to the seller, MLM Associates, a purchase money mortgage and note in the amount of $204,800.00. Defendant claims that both the sale and the mortgage were the product of fraud and misrepresentation by MLM. For present purposes, those claims will be accepted as true.
MLM later assigned the note and mortgage to OC Finance Associates, which in turn assigned the same debt to the plaintiff, Mellon Bank, N.A. Defendant made sporadic payments on the note and mortgage up until April, 1989 at which point it defaulted. It has been in default ever since. In response to defendant's default, plaintiff elected to accelerate the entire debt and eventually instituted this foreclosure on August 7, 1989. Defendant concedes that all of the events of default occurred after plaintiff acquired the mortgage and that at the time of the assignment, plaintiff was unaware of defendant's claims against MLM. Although defendant also admits the default, it claims that the fraud by MLM which induced the loan
precludes enforcement until all offsets are determined. Defendant has also asserted affirmative claims against MLM by way of a third party complaint.
N.J.S.A. 46:9-9 deals with the rights of an assignee of a mortgage and provides as follows:
All mortgages on real estate in this State, and all covenants and stipulations therein contained, shall be assignable at law by writing, whether sealed or not, and any such assignment shall pass and convey the estate of the assignor in the mortgaged premises, and the assignee may sue thereon in his own name, but, in any such action by the assignee, there shall be allowed all just set-offs and other defenses against the assignor that would have been allowed in any action brought by the assignor and existing before notice of such assignment.
In this case, Vienor alleges that it was defrauded by MLM at the inception and, but for the wrongdoing of the seller and its agents, it never would have purchased the unit or incurred the debt. Such allegations of fraud in the inducement are said to constitute a "personal defense" and are not normally held to be a valid defense to a suit on the note, assuming the lender is a holder in due course. N.J.S.A. 12A:3-305(2). On the other hand, since this is an action to foreclose the mortgage and this mortgage was assigned, N.J.S.A. 46:9-9 allows the debtor to assert all set-offs and defenses that would have been allowed against the assignor. The statute makes no distinction between the types of defenses that the mortgagor may assert.*fn2
The applicability of N.J.S.A. 46:9-9 to circumstances similar to those confronting this court was confirmed in S.D. Walker, Inc. v. Brigantine Beach Hotel Corp., 44 N.J. Super. 193, 129 A.2d 758 (Ch.Div.1957). In that case, the original lender was ...