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EMC Mortgage Corp. v. Chaudhri

April 21, 2008

EMC MORTGAGE CORPORATION, PLAINTIFF-APPELLANT,
v.
ISHAQUE CHAUDHRI AND CLAUDIA CHAUDHRI; SHAZIA CHAUDHRI-DEWIT*FN1; AND GATEWAY FUNDING DIVERSIFIED MORTGAGE SERVICES, L.P., DEFENDANTS-RESPONDENTS, AND DAN BALLANTINE WELL DRILLING, INC.; ALLIED BUILDING PRODUCTS CORP.; FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER FOR RESOLUTION TRUST CORPORATION, IN ITS CAPACITY AS CONSERVATOR OF STATE SAVINGS, FSB, CHESTER PARTNERSHIP; THE NATIONAL BANK OF SUSSEX COUNTY; BANK OF BARODA; MARY KABASAKALIAN; J. CLARK GEDDIS, ESQUIRE; THE ORTHOPEDIC GROUP; WACHOVIA NATIONAL BANK OF DELAWARE, N.A., F/K/A FIRST UNION NATIONAL BANK OF DELAWARE F/K/A FIRST UNION BANK OF DELAWARE, F/K/A CORESTATES BANK OF DELAWARE, N.A., MICHAEL EARL; SIGNE PALLOSEN EINAR HALVORSEN AND OSLO HALVORSEN (VALLE); AND MICHAEL KOLODY, DEFENDANTS.



On appeal from Superior Court of New Jersey, Chancery Division, Morris County, Docket No. F-21886-02.

The opinion of the court was delivered by: Lihotz, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Submitted January 16, 2008

Before Judges Lisa, Lihotz and Simonelli.

We reverse the dismissal of plaintiff's foreclosure complaint. We conclude the motion judge erred in interpreting the notice requirements of the Fair Foreclosure Act (FFA), N.J.S.A. 2A:50-53 to -68, and incorrectly imposed an obligation on plaintiff to provide actual notice of the recorded assignment of mortgage to the mortgagors prior to initiating foreclosure.

We also determine that sufficient factual disputes are present, making entry of summary judgment improper.

I.

Defendants Ishaque and Claudia Chaudhri (the Chaudhris) purchased a home in Chester Township (the property). On March 6, 1998, the Chaudhris executed a mortgage note and a purchase money mortgage to secure payment of $168,000, borrowed from Security Atlantic Mortgage Co., Inc. (Security). The mortgage was recorded in the county recording office on April 20, 1998. On May 20, 1998, Security assigned its interest to Unicor Mortgage, Inc. (Unicor). The assignment agreement was recorded. The Chaudhris defaulted on the mortgage obligation, and on October 28, 1999, Unicor commenced foreclosure under docket number F-17629-99.

Unicor then sought protection under the Bankruptcy Code. Plaintiff EMC Mortgage Corporation (EMC) purchased the Chaudhris' mortgage at a bankruptcy sale. EMC received an assignment of the mortgage and proceeded on Unicor's behalf to prosecute the foreclosure action.

On September 11, 2002, after presentation of proofs at trial, the Chancery Division judge (the trial judge) dismissed Unicor's complaint, without prejudice, citing three reasons. First, Unicor failed to properly comply with the notice provisions of the FFA. Second, Unicor did not present evidence of the recorded assignment agreement to EMC. Third, Unicor failed to prove that notice of the assignment to EMC was given to the Chaudhris. Thereafter, on October 8, 2002, EMC recorded the assignment of the Security mortgage it had received from Unicor.

After dismissal of Unicor's complaint, the Chaudhris filed a motion to discharge Unicor's lis pendens and mortgage. Counsel's certification of service stated that the motion was filed with the Clerk's office and mailed to "Christopher Fox, Esq., located at East Cooper Avenue, Moorestown, New Jersey." We note that the pleadings reveal Mr. Fox was designated trial co-counsel in the Unicor foreclosure and was associated with the law firm of Mark J. Udren & Associates of Cherry Hill.*fn2

On October 25, 2002, after review of the unopposed motion, the trial judge ordered:

(1) That the Lis Pendens[,] which was filed on the property located at 43 Pleasant Hill Road, in the Township of Chester, also known as Block 40, Lot 9, which was received and filed on November 17, 1999, and the Mortgage[,] which was duly recorded in Book 7563, Page 209&c, of the Morris County Register's Book of Mortgages by Security Atlantic Company are hereby discharged; and

(2) That title to the property be quieted in defendants and their successors and against any and all persons claiming under plaintiffs; and

(3) A copy of this Order be served upon counsel of record.

On October 28, 2002, the Chaudhris recorded the October 25, 2002 order with the county Register of Deeds. The record does not state whether EMC was sent a copy of the filed order.

On December 4, 2002, EMC filed a foreclosure complaint, in its own name, under docket number F-21886-02. EMC also filed and recorded a lis pendens on December 31, 2002.

On January 15, 2003, the Chaudhris sold the property to their daughter, defendant Shazia Chaudhri-DeWit, for stated consideration of $170,000. The deed was recorded on February 13, 2003. On that same date, DeWit borrowed $136,000, executed a note, and granted a purchase money mortgage on the property to defendant Gateway Funding Diversified Mortgage Services, L.P. (Gateway).

EMC discovered the October 25, 2002 order, which discharged its mortgage and filed an emergent application to vacate the order and for other relief. On February 24, 2003, the trial judge vacated the October 25, 2002 order stating: "Through inadvertence by the court the order entered on October 25, 2002 did not reflect accurately the decision of the court and must be vacated." The Chaudhris' 2002 motion, along with newly filed motions, were listed for oral argument.

On March 12, 2003, the trial judge entered disposition on all pending applications. The court considered the Chaudhris' motion to discharge the Unicor mortgage and to quiet title, which originally had been filed in 2002. The motion was denied and the court ordered the prior order of October 25, 2002, "STRICKEN OF RECORD." The trial judge further ordered deleted the "handwritten notation" placed on the recorded mortgage discharging it by court order. The trial judge stated: "In dismissing the complaint . . . the court was not adjudicating that the mortgage lien was invalid, nor that the Note and Mortgage were unenforceable against [d]efendants." Finally, the court restored and reinstated the Security mortgage as "a valid first lien" on the property.

A second order, also entered on March 12, 2003, addressed the Chaudhris' motion to dismiss EMC's foreclosure action, asserting application of res judicata and collateral estoppel. We note the Chaudhris' did not reveal they had sold the property to DeWit. The court also denied this motion stating: "Dismissal of the Unicor . . . foreclosure action against these defendants because of procedural defects and deficiencies does not at law or in equity preclude a subsequent action on the note and mortgage by a different party for a later default."

Based on the record, we conclude EMC was unaware of the sale to DeWit and Gateway's mortgage, recorded in February 2003. Gateway did not receive notice of or participate in these proceedings.

On September 19, 2003, EMC amended its foreclosure complaint to add Gateway and DeWit. Gateway filed a contesting answer asserting its lien was primary to any debt due EMC. Also, Gateway filed cross-claims against the Chaudhris and DeWit to recoup damages if its mortgage was not deemed the first lien on the property. Gateway also filed a counterclaim against EMC to declare EMC's lien was inferior to Gateway's.

Final disposition of the foreclosure matter was delayed because Ishaque Chaudhri filed a voluntary petition under Chapter 7 of the Bankruptcy Code, 11 U.S.C.A. § 701. When EMC secured an order to vacate the automatic stay, 11 U.S.C.A. § 362(d), from the Bankruptcy Court, it resumed the foreclosure action.

Motions for summary judgment were filed by the Chaudhris, DeWit and Gateway. A different judge (the motion judge) was assigned to the matter following the trial judge's retirement. On April 27, 2007, the motion judge entered three separate orders granting each defendant's request for summary judgment. The motion judge ordered that Gateway, and its successors or assigns, were not bound by the February 24, 2003 and March 12, 2003 orders, and concluded that Gateway's mortgage had priority over EMC's. The motion judge issued the following findings and conclusions:

[I] find that the lender . . . EMC, has not cured the procedural deficiencies as it relates to proceeding on this foreclosure action by most specifically not providing proof of ...


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