On appeal from the Superior Court of New Jersey, Law Division, Middlesex County.
Approved for Publication.
Defendants Albert Pinhas, Theodore Shapiro and Barbara Shapiro borrowed $162,000 from plaintiff United Jersey Bank in order to finance their purchase of three residential condominium units located in Monmouth County, New Jersey. The loan was evidenced by a promissory note dated March 5, 1987 and it was secured by a purchase money mortgage on the condominiums.
The borrowers defaulted on their loans. In February 1992, United Jersey Bank commenced a suit in Middlesex County La Division seeking a judgment against them for the unpaid balance of their note. The bank's complaint alleged that their indebtedness then amounted to $152,375.00, plus interest, attorney's fees, late charges and costs.
In June 1992, while the Middlesex County Law Division suit on the note was still pending, United Jersey Bank commenced an action in Chancery Division, Monmouth County, to foreclose its mortgage on the condominium units. In November 1992, before the bank's mortgage was foreclosed, the borrowers moved in the Law Division action to dismiss the bank's complaint or, alternatively, for partial summary judgment declaring that they were entitled to have the fair market value of the mortgaged condominium units which the bank was about to foreclose credited against their liability to the bank on their promissory note. The bank filed a cross-motion for summary judgment in its favor for $172,534.47, the amount then due on the note.
Ruling on these cross-motions for summary judgment, the Middlesex County Law Division held that the borrowers were liable to the bank on their promissory note, but it declined to determine the amount of their obligation. The court also ruled that the borrowers were entitled to have the fair market value of the mortgaged condominiums credited against their debt, but it declined to order a hearing to determine fair market value The court entered an order which denied the borrowers' motion to dismiss the bank's complaint, denied [sic] the borrowers' motion for partial summary judgment on liability, and ruled that the borrowers were entitled to a credit for the fair market value of their property. The order also provided that the bank's action to collect on the note was "precluded until defendants' property has been foreclosed." Simultaneously, the court entered an order which recites that it was entered by consent, granting United Jersey Bank partial summary judgment against the borrowers as to liability only.
Trial of the bank's action on the borrowers' prommissory note commenced before the Middlesex County Law Division on March 26, 1993. The condominium units which secured the promissory note had not yet been foreclosed. At the Conclusion of the trial, the Judge determined that the borrowers owed the bank $172,534.47 and that they were entitled to a fair market credit of $46,646.50 per unit for their three mortgaged condominium units. Accordingly, a final judgment was entered on August 16, 1993, holding defendants jointly and severally liable to the Bank for $32,594.97.
The bank has appealed. It argues that the Law Division should have entered a judgment for the entire unpaid amount of its debt because the borrowers have neither a statutory nor an equitable right to a fair market value credit. For the following reasons, we agree with the bank that the borrowers had not established either a statutory or an equitable basis for the relief granted them by the Law Division when it was granted. However, that leads us only to the Conclusion that allowing the borrowers a credit before completion of the foreclosure was premature. The bank's subsequent purchase of the property at the foreclosure sale for a nominal bid triggered the borrowers' right to a valuation and a credit to prevent the bank from receiving a double recovery.
The statutory provision on which the borrowers rely, N.J.S.A. 2A:50-3, reads as follows:
The Obligor in any bond or note specified in section 2A:50-2 of this Title, with respect to any bond given . . . and with respect to any note given after the effective date of this amendatory act may file an answer in the action for deficiency, disputing the amount of the deficiency sued for. In that event both parties may introduce evidence as to the fair market value of the mortgaged premises at the time of the sale thereof in the foreclosure action . . . .
This section, which had previously applied only to mortgage debts evidenced by bonds, was amended by L.1979, c. 286, § 2 to apply to mortgage debts evidenced by promissory notes. Section 13 of L.1979, c.286 became N.J.S.A. 2A:50-2.3, which reads in part as follows:
This act [i.e., L. 1979, c. 286] shall not apply to proceedings to collect a debt evidenced by a note and secured by a mortgage on real property in the following instances:
a. Where the debt secured is for a business or commercial purpose other than a two-family, three-family or four-family residence in which the owner or his immediate family resides.
b. Where the mortgaged property is other than a one-family, two-family, three-family or four-family dwelling in which the owner or his immediate family resides at the time of ...