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MORRIS v. AZZI

October 5, 1994

EDWARD J. MORRIS, Plaintiff
v.
HARRY J. AZZI, FLORENCE J. AZZI, THE RESOLUTION TRUST CORPORATION IN ITS CAPACITY AS CONSERVATOR OF CARTERET FEDERAL SAVINGS BANK, THE RESOLUTION TRUST CORPORATION IN ITS CAPACITY AS RECEIVER OF CARTERET SAVINGS BANK, F.A., AND FEDERAL HOME LOAN MORTGAGE CORP., Defendants and INDEPENDENCE ONE MORTGAGE CORPORATION, v. HARRY J. AZZI, FLORENCE L. AZZI, et. al.



The opinion of the court was delivered by: JEROME B. SIMANDLE

 SIMANDLE, District Judge:

 This matter comes before the court upon the motion of defendants, Resolution Trust Corporation as Conservator of Carteret Federal Savings Bank and as Receiver of Carteret Savings Bank, F.A., and Federal Home Loan Mortgage Corporation (FHLMC) to dismiss plaintiff's complaint for failure to state a claim upon which relief may be granted. In light of the fact that discovery is ongoing, the motion will be treated strictly as one brought under Rule 12(b)(6), Fed.R.Civ.P., and not as one for summary judgment, although the parties append certain extraneous documents to their papers.

 The motion presents two legal issues. First, under what circumstances may a first mortgagee be held liable to a second mortgagee for failing to conserve the second mortgagee's equity interest in the property under New Jersey law? Second, is the assertion of a cause of action against a financial institution taken over by the Resolution Trust Corporation for breach of the implied covenant of good faith and fair dealing in the performance of obligations under a Postponement of Mortgage barred as a matter of law under the D'Oench, Duhme doctrine or 12 U.S.C. ยง 1823(e)?

 Discussion

 Plaintiff's complaint alleges that on November 12, 1987, Harry J. Azzi and Florence L. Azzi executed and delivered to plaintiff a mortgage note to secure the sum of $ 50,000, payable on December 1, 1988. There was also a mortgage in the sum of $ 202,500.00 on the property in favor of defendant Carteret Savings Bank, which was recorded on November 27, 1989. The Azzis defaulted on their payments to plaintiff, and plaintiff accordingly filed a complaint, styled "Complaint in Foreclosure," in the Superior Court, Chancery Division, Atlantic County. Count 1 of the complaint, later removed by defendant Resolution Trust Corporation (RTC) *fn1" to the federal district court, seeks an Order directing plaintiff to be paid the amount due under the note, prays for the appointment of a rent receiver, and seeks a sale of the property in order to satisfy the amount due plaintiff. Count 2 of the complaint seeks possession of the property, as well as damages.

 The critical portions of the complaint for present purposes appear at Counts 3 and 4. Count 3 sets forth that on November 10, 1989, plaintiff executed, at the request of defendant Carteret Savings Bank, a "Postponement of Mortgage" in the amount of $ 50,000. Cmplt., Count 3, P 4. The Carteret mortgage is alleged to have been transferred to defendant FHLMC on that same date. Id. P 5. Carteret, however, is alleged to have maintained its right to service the mortgage transferred to FHLMC in exchange for receipt of a monthly servicing fee. Id. P 6. Plaintiff received, as a consequence of the November 10, 1989 activities, payment of $ 4,925.00 to satisfy the principal balance due on a separate note executed in his favor by the Azzis. Plaintiff alleges that this sum did not represent consideration for the execution of the Postponement of Mortgage document he executed. Id. P 8. The Postponement of Mortgage document recites that plaintiff received the sum of $ 1.00 as consideration for making the Postponement, but plaintiff states that he never received that sum. Id. P 10. In addition, the complaint alleges that plaintiff "bargained for and relied on the expectation that Carteret would exercise prudent investment care in the servicing of the Azzi loan and would comply with applicable federal statutes, rules, regulations, bulletins and guides governing purchase contracts by and between the Federal Home Loan Mortgage Corporation and its servicing financial institutions such as Carteret." Id. P 11.

 On October 11, 1990, the Azzis filed a petition for bankruptcy under Chapter 13, and later Chapter 7, of the United States Bankruptcy Code. Plaintiff avers that from on or about October 1, 1990, defendant Carteret failed to utilize appropriate collection techniques; failed to cooperate with plaintiff, who made attempts to dispose of the property; failed to take reasonable steps to prevent an accumulation of interest due on the Carteret mortgage, thereby jeopardizing the equity value of the mortgaged premises; and generally permitted the mortgage principle and interest payments to accumulate to the point where no equity or proceeds would be available to plaintiff, all as a result of negligence. The complaint further alleges that defendant Carteret's conduct in failing to use prudent care in the servicing of the Azzi mortgage in contravention of rules and regulations established by the FHLMC "and impliedly bargained for as consideration for execution of the Postponement of Mortgage dated November 10, 1989" has resulted in damages to plaintiff. It is plaintiff's contention, moreover, that defendant Carteret is "guilty of laches and as a result of its conduct . . . should be estopped from asserting any claim against the mortgaged premises . . . and the lien of Carteret should be subordinated to the mortgage note and mortgage of plaintiff." Id. P 26. He therefore seeks all amounts due on the note plus interest, equitable relief in the form of a cancellation of the Postponement of Mortgage, and equitable subordination of the Carteret Mortgage to plaintiff's mortgage.

 In Count 4 of the amended complaint, *fn2" plaintiff alleges that, in light of the Postponement of Mortgage, defendant Carteret had a duty, obligation and responsibility to act reasonably and in good faith in order to protect and conserve the equity and position of plaintiff as second mortgagee. In addition, plaintiff states that defendant's failure to proceed timely with a default against the Azzis was intentional, and was part of a scheme not to foreclose on mortgages it held throughout the state of New Jersey in order to allow an accumulation of interest and penalties on the mortgaged properties; plaintiff alleges that such strategy inhered to the financial benefit of defendant Carteret when Carteret subsequently sold the mortgage loans to other financial institutions, maintaining servicing rights as part of the transactions. Amended Cmplt., Count 4 PP 3 - 6. Plaintiff alleges that defendant's actions in permitting the default to continue to the point where the amount due defendants would equal or exceed the fair market value or appraised value of the property were unfair business practices which operated to deprive plaintiff of equity in the Azzi residence. Id. P 8.

 A. Defendants' Motion to Dismiss on Ground that They Owe No Duty to Plaintiff of Cautious Loan Administration

 A Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted must be denied "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). A district court must accept as true the facts pleaded in the complaint and any and all reasonable inferences which may be derived from those facts. Unger v. National Residents Matching Program, 928 F.2d 1392, 1400 (3d Cir. 1991); Glenside West Corp. v. Exxon Co., U.S.A., 761 F. Supp. 1100, 1107 (D.N.J. 1991); Gutman v. Howard Sav. Bank, 748 F. Supp. 254, 260 (D.N.J. 1990).

 It is not necessary for the plaintiff to plead evidence, and it is not necessary to plead the facts that serve as the basis for the claim. Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977), cert. denied, 434 U.S. 1086, 55 L. Ed. 2d 791, 98 S. Ct. 1280 (1978); In re Midlantic Corp. Shareholder Litigation, 758 F. Supp. 226, 230 (D.N.J. 1990). The question before the court is not whether the plaintiff will ultimately prevail; rather, it is whether he can prove any set of facts in support of his claims that would entitle him to relief. Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984).

 The quoted statement accurately reflects New Jersey law. Only if a mortgagee is one in possession will the mortgagee owe a duty to a second mortgagee to account in a foreclosure action. See Shadow Lawn Sav. & Loan Assoc. v. Palmarozza, 190 N.J. Super. 314, 319, 463 A.2d 384 (App.Div. 1983) (citing South Amboy Trust Co. v. McMichael Holdings, Inc., 141 N.J. Eq. 12, 14, 56 A.2d 437 (Ch. 1947)); McCorristin v. Salmon Signs, 244 N.J. Super. 503, 509, 582 A.2d 1271 (App.Div. 1990) ("Once a mortgagee gains possession the mortgagee assumes the responsibility for the management and preservation of the property.") (citing Essex Cleaning v. Amato, 127 N.J. Super. 364, 366, 317 A.2d 411 (App.Div.), certif. denied, 65 N.J. 575 (1974)).

 It is not the case, then, that there is no set of facts which would support plaintiff's claim. As defendants' brief acknowledges, defendant Carteret could be held liable to plaintiff if it were deemed a mortgagee in possession. Plaintiff urges the court not to dismiss his complaint before he is given an opportunity to discover facts in support of such a theory, and cites the court to evidence already in his possession showing that defendant Carteret had keys to the premises and had certain repair work performed after the Azzis abandoned the property. Although defendants dispute that they were mortgagees in possession by including a sentence in their "Statement of Undisputed Material Facts" that they were never in possession of the property, this statement is actually contested by plaintiff and is not properly considered on a motion to dismiss. *fn3" The complaint will not be dismissed at this stage; plaintiff was not required to "plead evidence," and there exists a set of facts which could support the claim subject to attack on the present motion. If discovery yields evidence that defendant Carteret was not a mortgagee in possession, it would then be ...


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