On Appeal from Superior Court, Chancery Division, Hudson County
Before Judges Stern, Keefe and Newman
The opinion of the court was delivered by
NEWMAN, J.S.C. (temporarily assigned)
On this appeal the court is presented with the applicability of the Secondary Mortgage Loan Act, N.J.S.A. 17:11A-34 to -59.2, ("SMLA") to a mortgage loan, assigned on the day of closing to a licensed secondary mortgage loan company, where a portion of the proceeds was used to satisfy two existing mortgages, allowing the new mortgage to become a first mortgage. This issue arises in the context of an affirmative defense and counterclaim in a foreclosure action pursued by the secondary mortgage company when the defendants, Jorge Forero and Rosa Forero, defaulted on their mortgage payments. Defendant Rosa Forero ("Rosa") appealed from a judgment in favor of plaintiff Trico Mortgage Company, Inc. ("Trico"), entered in the Chancery Division following a non-jury trial. The court below held that the SMLA did not apply. Argument on the appeal was heard October 26, 1993. A decision was entered December 21, 1993. On motion for reconsideration, the opinion was withdrawn. After additional briefing and oral argument, we agree that the SMLA does not apply and affirm.
The relevant facts may be summarized as follows. Jorge Forero ("Jorge") purchased a home located at 419 - 41st Street, Union City, Hudson County, New Jersey on March 31, 1980. He gave George N. Barrick and Theresa Barrick ("Barricks"), the sellers, a first mortgage in the amount of $27,000.00 for a term of fifteen years subject to an interest rate of 10 1/2% per year, to secure part of the purchase price ("Barrick mortgage"). In 1985 Rosa married Jorge. On January 21, 1987 Jorge borrowed $22,000.00 for a term of approximately four and one-half years subject to an interest rate of 16% per year from HMS Investors, Inc., giving back a second mortgage on the property ("HMS mortgage").
On November 6, 1989 Jorge and Rosa borrowed $80,000.00 for a term of fifteen years at an interest rate of 19.11% per year from Federal Mortgage & Investment Corp. ("Federal"). In return, the Foreros gave Federal a mortgage on the property. According to the Disclosure Statement dated November 6, 1989, the funds were disbursed as follows: $17,601.61 to the Foreros; $2,895.00 to an insurance company for life insurance; $600.00 for attorney fees; $225.00 for an appraisal; $110.00 for filing and recording fees; $475.00 for title insurance fee; $4,164.93 to the Tax Office of Union City; $15,420.39 to the Barricks to satisfy the first mortgage; and $31,308.07 to HMS Investors, Inc. to satisfy the second mortgage. In addition, the Foreros paid a "prepaid finance charge" (points) of $7,200.00 to Federal.*fn1 On this same date, November 6, 1989, Federal assigned the note and mortgage to Trico.*fn2 The title insurance policy issued with the mortgage indicated that the insured mortgage was a first lien. Trico processed the loan through its secondary mortgage loan department. A letter sent to the Tax Office of Union City by Trico characterized the mortgage as a secondary mortgage.
Checks were forwarded to the Barricks and HMS on November 14, 1989. The Barrick mortgage was canceled on November 15, 1989. The HMS mortgage was canceled on November 11, 1991.*fn3
The Foreros were divorced shortly after receiving the loan from Federal. Rosa gained title to the property as part of the property settlement from the divorce. The last payment to Trico was made on September 11, 1990.*fn4
On February 27, 1991 Trico initiated a foreclosure action against the Foreros. Rosa filed an answer and counterclaim on April 22, 1991. The answer and counterclaim alleged that the SMLA applied and was violated. Trial was held on October 26, 1992. Rosa argued that because the mortgage to Federal was issued while two mortgages were outstanding, it was a secondary mortgage subject to the SMLA. Furthermore, she contended that if the SMLA applied, points were improperly charged entitling defendant to set-off interest paid and points paid, and treble damages for a knowing and willful violation of the SMLA. She maintains that the judgment against her should be reduced to $46,027.56.
The court below entered judgment for Trico in the amount of $110,175.71, finding that the mortgage was not a secondary mortgage and therefore the SMLA did not apply. Citing Martindell v. Fiduciary Counsel, Inc., 133 N.J. Eq. 408, 30 A.2d 281 (E. & A. 1942) ("equity regards the substance and intent rather than the form") and Goodell v. Monroe, 87 N.J. Eq. 328, 100 A. 238 (E. & A. 1917) ("equity regards as done that which ought to have been done"), the trial Judge concluded:
Very simply stated, when the smoke cleared, and disbursements were given effect to, the two prior mortgages would be paid off and Trico's mortgage would be a first mortgage. Of course, until that happened, Trico would not have a first mortgage, but as stated by the Court of Errors and Appeals, which is good law to this day, equity regards the substance of a transaction rather than the form. And the substance of this transaction was that the two prior mortgages were being paid off and satisfied then and there, and the Trico mortgage would be a first mortgage.
We agree that the Trico mortgage was a first mortgage and, therefore, the SMLA does not apply. In view of the additional arguments made to us and not presented below, we address several points raised before the trial court as well as those argued for the first time on this appeal.
The defendant argued in the trial court and on appeal that the definition of "secondary mortgage loan" found within the SMLA required that a loan which will pay off existing mortgage liens upon the property that becomes the security for the loan is by definition a secondary ...