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Sovereign Bank, FSB v. Kuelzow

February 4, 1997


On appeal from the Superior Court of New Jersey, Chancery Division, Monmouth County.

Approved for Publication February 7, 1997. As Corrected March 20, 1997.

Before Judges Dreier, Newman and Villanueva. The opinion of the court was delivered by Dreier, P.j.a.d.

The opinion of the court was delivered by: Dreier

The opinion of the court was delivered by


Defendants, Christopher J. Kuelzow and Ann L. Kuelzow, appeal from a post-foreclosure judgment order refusing to enjoin delivery of a deed or to set aside a sheriff's sale of their residential property. Defendants also claim that the Judge mistakenly declined to order a fair market value hearing to establish the excess value received by plaintiff, Sovereign Bank, when it obtained the property as a result of a $100 bid at the sheriff's sale. The property was described at oral argument before us as five acres comprising several lots of prime residential real estate on a bluff overlooking Sandy Hook, on which was constructed a 6500 square foot single-family tudor residence. Defendants purchased the property in 1986 with plaintiff's predecessor having been given a first mortgage. The balance due as of May 1994 was slightly in excess of $207,000, but with interest, costs and tax advances, the foreclosure balance was approximately $226,000.

Defendants allege that in 1989, and for each year through 1994, they obtained a casualty policy from Aetna Casualty & Surety Company. This homeowners policy covered the dwelling for $800,000, other structures for $80,000, and personal property for $400,000. There was additional coverage of $160,000 for loss of use. Payment to defendants was due sixty days after proof of loss, after a $500 deductible. Defendants had obtained various additional coverages, including a home replacement cost guarantee endorsement guaranteeing coverage for full replacement costs of the dwelling so long as the terms of the policy were met even if the replacement costs exceeded the $800,000 face amount of the policy.

On March 13, 1993, defendants' home suffered substantial damage caused by a record Atlantic storm on that date which added to possible damages caused by a similar storm of December 11, 1992. The principal physical damages were the collapse of a sub-basement foundation; a resulting shifting of the house from side to side; cracking and distress to the roof and roofing system as well as masonry support piers, chimneys and plaster walls of rooms; resulting damage to interior framing, flooring and foundation as well as structural supports; and resultant damage to trees, shrubs, lawns and plantings. The house became unsafe to live in, and defendants contend that the structure was a total loss, forcing them to seek interim housing elsewhere. They duly submitted their claim to Aetna in early April 1993, and spent in excess of $50,000 to brace, reinforce and otherwise repair the dwelling to mitigate against further damage.

Aetna, however, on June 29, 1993 denied defendants' claims for benefits under their policy. Defendants soon thereafter filed a declaratory judgment action against Aetna in Monmouth County, and at approximately the same time plaintiff commenced this foreclosure action. In addition, defendants' second mortgagee, Beneficial Mortgage Company, brought an action against defendants on their note and in that action also made a claim against Aetna, presumably asserting Beneficial's rights as a secondary loss payee under the casualty policy. Summary judgment was entered against defendants in favor of Beneficial in the amount of $168,396. The Judge in that suit, however, stayed execution pending resolution of the claim in the collateral insurance action.

Unlike the Judge in the Beneficial action, the Judge in plaintiff's foreclosure suit declined to stay the foreclosure action pending the result in the insurance litigation. Even though the insurance suit was to be specially managed and given a preemptory trial listing, it has now been pending for over three and a quarter years without a hearing. There have been substantial delays, as we explain later.

Plaintiff proceeded in its foreclosure action and final judgment was entered in its favor on May 23, 1994. Defendants attempted to challenge the propriety of the judgment and to stave off a sheriff's sale. Assuming that the insurance litigation would be concluded within a short time, defendants entered into an agreement embodied in a consent order of March 22, 1995. The agreement provided for the adjournment of the sheriff's sale until December 11, 1995, providing defendants made certain payments, and defendants also agreed to waive their defenses to the foreclosure action. Under the agreement, defendants made payments to plaintiff equivalent to the former mortgage payments, but as we will explain, the insurance action still was not tried by the expiration of the period covered by the consent order.

Defendants had understood that the adjournments of the sheriff's sale would continue through December 18, 1995, notwithstanding the December 11, 1995 date in the order itself. Defendants' attorney called plaintiff's attorney on the morning of December 11 to attempt to negotiate a further extension of the foreclosure sale due to the lack of progress in the insurance litigation. During that call, defense counsel was informed, allegedly for the first time, that the sale had been scheduled on that day, not a week hence, and in fact would proceed at 2:00 p.m. Plaintiff insisted, and the trial Judge appears to have agreed, that the consent order itself was sufficient notice of the date of the sale and that plaintiff's counsel had no obligation to give defendants' attorney even a courtesy notice that plaintiff would be proceeding. Plaintiff's attorney did make the offer, however, that for a $4000 payment plaintiff would adjourn the sale for an additional month. Because there was little likelihood that the insurance case would be concluded within that month and because they felt the payment demanded was unreasonable, defendants declined. Defendants' attorney, however, attended the sale and advised those present, including potential bidders, that the property was the subject of litigation and that defendants were contesting the propriety of the sale and would move to have the sale set aside in order to protect their rights. The potential bidders bowed out, and plaintiff as the sole bidder purchased the property for $100. In the interim, defendants had attempted to contact the court to obtain an order staying the sale, but the court would not entertain the application.

We understand that defendants offered at the time of the sale, and still offer, to pay plaintiff its contractual carrying charges on the mortgage, principal, interest and taxes through the anticipated Conclusion of the insurance litigation, but that this offer was and continues to be declined. Even after the sheriff's sale, defendants in good faith continued their payments on the underlying mortgage, and at least through March 1996 offered to continue to do so in the hopes that the Aetna case would be concluded.

The insurance litigation now has a trial date for March 1997. The earlier adjournments have been explained with reference to the Judge to whom the matter had been assigned being required first to try a substantial environmental case and then to try another ...

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