On appeal from Superior Court of New Jersey, Chancery Division, Passaic County.
Approved for Publication March 17, 1997. Counsel Amended April 8, 1997.
Before Judges Michels, Kleiner, and Coburn. The opinion of the court was delivered by Coburn, J.
The opinion of the court was delivered by: Coburn
The opinion of the court was delivered by
COBURN, J.S.C. (temporarily assigned).
In this mortgage foreclosure action, plaintiff Virginia Beach Federal ("VBF"), the first mortgagee, and defendant The Bank of New York ("BNY"), the second mortgagee, claim the legal right to surplus funds generated at the sheriff's sale of the mortgaged property. VBF seeks reimbursement from the surplus funds for payment of real estate taxes, insurance premiums, and property inspection costs incurred after the entry of the final judgment of foreclosure but before the sheriff's sale. BNY was the successful bidder at the sheriff's sale, and it claims entitlement to the surplus to reduce its losses because the alleged costs of VBF were not included or referenced in the judgment of foreclosure and because BNY purchased the property without knowledge that such costs existed. Following the sale, the sheriff deposited the surplus funds with the clerk of the court. VBF moved for an order directing the clerk to pay the surplus to it. The Chancery Division Judge denied VBF's motion. VBF appeals, and we affirm.
In January 1977, defendants Thomas J. and Diane B. Jones mortgaged their home on Otterhole Road, West Milford, New Jersey. In 1984 the mortgage was assigned to VBF. A subsequent loan resulted in the second mortgage on this property held by BNY. The Jones's defaulted and plaintiff VBF instituted foreclosure proceedings. The final judgment of foreclosure and the writ of execution were issued on September 13, 1995. At the January 2, 1996, sheriff's sale, held pursuant to the writ of execution, BNY was the successful bidder with an offer of $25,150. There is no indication of the identity of any other bidders. After payment of the first mortgagee's judgment and the sheriff's incidental expenses, the sale yielded a surplus of $4,099.90, which the sheriff deposited with the clerk of the Superior Court.
On March 27, 1996, plaintiff VBF filed its unsuccessful motion seeking reimbursement from the deposited surplus funds for the following items of expense, totaling $3,865.75, which it had voluntarily incurred after obtaining the judgment of foreclosure and before the sheriff's sale: $2,690.25 for real estate taxes, $1,132.00 for insurance premiums on the property, and $43.30 for property inspection. Neither the judgment of foreclosure nor the writ of execution made mention of these expenses. Nor were they otherwise brought to the attention of the sheriff or the bidders at the time of the sale.
Petitions for surplus moneys in foreclosure actions are governed by N.J.S.A. 2A:50-37 and R. 4:64-3. The statute provides, in pertinent part:
The moneys arising from a sale pursuant to this section shall be applied to pay off and discharge the moneys ordered to be paid, and the surplus, if any, shall be deposited with the court and the same shall be paid to the person or persons entitled thereto, upon application therefore, as the court shall determine. [emphasis added.]
The rule provides, in pertinent part:
Petitions for surplus moneys in foreclosure actions may be presented at any time after the sale and may be heard by the court on motion and notice to all defendants whose claims are not directed in the execution to be paid out of the proceeds of sale including defaulting defendants. [emphasis added.]
VBF relies on the absence from the statute and the rule of any express statement prohibiting the award of surplus funds to the foreclosing mortgagee. Therefore, it contends the matter rests in the sound discretion of the court. BNY argues that the portions of the statute and rule emphasized above demonstrate implicitly that a foreclosing mortgagee has no standing to seek surplus funds because under the statute the foreclosing mortgagee is only entitled to the "monies ordered to be paid" and because under the rule only defendants are entitled to notice of the motion for surplus moneys.
BNY further contends that its construction of the statute and rule accord with the basic doctrine that upon foreclosure the mortgage merges into the final judgment of foreclosure and "every party . . . has the right to assume that such decree represents the final determination of the debt...." Colonial ...