The opinion of the court was delivered by: D'amico
On October 1, 1991, plaintiff Joseph Fischer (tenant) rented a house located at 13 Beverly Court, Tinton Falls, N.J., from defendants Grace and Howard Heck (landlords). The term of the lease was twelve months, and rent was payable at the rate of $1,050 per month. The tenant paid an initial security deposit of $1,575 which, according to the lease, was deposited by the landlords in an account at Shrewsbury State Bank (Bank).
On or about April 10, 1992, the Bank acquired 13 Beverly Court, Tinton Falls, N.J., from the landlords by way of foreclosure proceedings. The tenant remained in the house on a month-to-month basis.
In 1993, the tenant fell behind in his rent obligations. The Bank filed an action for possession. The tenant vacated the house in January 1994. The Bank also filed a complaint in the Special Civil Part, Law Division, claiming that the tenant had failed to make rent payments totalling $5,500. The Bank also claimed $1,525 incurred to repair damage allegedly done by the tenant to the fixtures on the premises. The tenant answered the complaint, alleging that no oral agreement was entered into with the Bank, that no damage was done to the premises, and that the initial security deposit was never refunded. A stipulation of settlement was executed by both parties on August 4, 1995, in which the Bank agreed to accept $1,500 from tenant in full settlement of its claims.
The tenant has instituted this suit in Special Civil Part against the original landlords, alleging that they never advised him of the foreclosure proceedings instituted by the Bank. The tenant further claims that the initial security deposit of $1,575 was never transferred to the Bank following the foreclosure proceedings. Moreover, the tenant alleges that the security deposit was never refunded and that no reason was ever given for failure to return it.
The tenant contends that the issue of the security deposit was not factored into the August 4, 1995, stipulation of settlement with the Bank, because the tenant denied causing any damage to the house. The tenant testified at the trial of this case that he understood that the Bank simply wanted to recover money for unpaid rent. The tenant further contends that the security deposit was never transferred to the Bank in the first place. The tenant seeks recovery of double the amount of his security deposit, interest, and attorney's fees pursuant to N.J.S.A. 46:8-21.
The landlords maintain that the tenant's claim should have been raised in defense of the actions filed by the Bank; that the Bank stepped into the position of the landlords; and that they accepted responsibility for and obligations with regard to, the security deposit. The landlords also argue that the tenant was aware that the Bank owned the property and that there was a question as to the security. Counsel for the landlords argues that having settled the matter, the tenant is now estopped from suing the original landlords for the security deposit, his lawsuit against the landlords being barred by the entire controversy doctrine.
The question of the Disposition of a security deposit upon a foreclosure of leased premises is governed by N.J.S.A. 46:8-20, which provides as follows:
Any person, whether the owner or lessee of the property leased, who or which has or hereafter shall have received from a tenant or licensee a sum of money as a deposit or advance of rental as security for the full performance by such tenant or licensee of the terms of his contract, lease or license agreement, or who or which has or shall have received the same from a former owner or lessee, shall, upon conveying such property or assigning his or its lease to another, or upon the conveyance of such property to another person by a court in an action to foreclose a mortgage thereon, at the time of the delivery of the deed or instrument of assignment, or within five days thereafter, or in the event of the insolvency or bankruptcy of the person receiving said deposit, within five days after the making and entry of an order of the court discharging the receiver or trustee, deal with the security deposit by turning over to his or its grantee or assignee, or to the purchaser at the foreclosure sale the sum so deposited, plus the tenant's portion of the interest or earnings accumulated thereon, and notify the tenant or licensee by registered or certified mail of such turning over and the name and address of such grantee, assignee or purchaser.
It is undisputed that the landlords failed to comply with the requirements of this statute. The issue, which has not before been decided in a published opinion, is what the consequences of noncompliance with the statute should be.
Had the landlords turned over to the Bank the amount of the security deposit plus interest, they would have been relieved from liability to the tenant for the repayment thereof pursuant to N.J.S.A. 46:8-21, which provides:
Any owner or lessee turning over his or its grantee, assignee, or to a purchaser of the leased premises at a foreclosure sale the amount of such security deposit, plus the tenant's portion of the interest or earnings accumulated thereon, is hereby relieved of and from liability to the tenant or licensee for the repayment thereof; and the transferee of such security deposit, plus the tenant's portion of the interest or earnings accumulated thereon, is hereby made responsible for the return thereof to the tenant or licensee, in accordance with the terms of the contract, lease, or agreement unless he or it shall thereafter and before the expiration of the term of the tenant's lease or licensee's agreement, transfer such security deposit to another, pursuant to section 2 hereof *fn1 and give the requisite notice in connection therewith as provided thereby.
It is also clear, pursuant to this statute, that had the Bank received the security deposit from the landlords, it would have become responsible for Disposition of the deposit upon the tenant's completion of the lease. Furthermore, it has been held that a successor landlord is liable for return of the security deposit which had been paid to the prior foreclosed-upon landlord but which had not been turned over to ...