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First Union National Bank v. Penn Salem Marina

March 12, 2009


On appeal from Superior Court of New Jersey, Chancery Division, Salem County, Docket No. F-2496-03.

Per curiam.


Argued February 9, 2009

Before Judges Lisa, Reisner, Sapp-Peterson.

This case arises from a long-running dispute over the foreclosure of a marina by the mortgagee, plaintiff First Union National Bank (bank).*fn1 After obtaining a final judgment of foreclosure, the bank bought the foreclosed property for nominal consideration at the sheriff's sale and later sold it to a third party. Defendants Penn Salem Marina, Inc. (Penn Salem) and its corporate president, Marvin K. Hitchner, Jr. (Hitchner), appeal from an order dated April 1, 2008, in which Judge Rafferty denied their motion to void the transfer of title to the third party and compel a new foreclosure sale, or in the alternative to compensate them for the alleged full value of the property. Finding no merit in any of defendants' appellate contentions, we affirm substantially for the reasons stated in Judge Rafferty's cogent written opinion dated April 1, 2008.


The history of this matter is set forth in some detail in the opinion of the Supreme Court in First Union National Bank v. Penn Salem Marina, Inc., 190 N.J. 342, 345-50 (2007), and in Judge Rafferty's April 1, 2008 opinion. To summarize the early history, in 2001 Penn Salem and Hitchner borrowed $750,000 from the bank. The loan was secured by a note and a mortgage on Hitchner's marina property. After defendants defaulted on the loan, the bank first sued on the note in the Law Division and obtained a default judgment of approximately $845,000 on August 12, 2003. The bank also filed a foreclosure action, which resulted on January 13, 2005 in a final foreclosure judgment for $1,042,111.36 plus additional interest, a larger amount than the Law Division judgment.

We affirmed the foreclosure judgment on February 17, 2006, 383 N.J. Super. 562 (App. Div. 2006), but the Supreme Court subsequently reversed, holding that when there is an action on the note followed by an action to foreclose on the security, the trial court in the second action should be bound by the judgment entered in the first action to the extent the same categories of damages are claimed in the second action as in the first. In this instance, issue preclusion requires that both judgments contain the same amounts for those categories of damages that cover the same period of time.

For example, here, the outstanding principal and the rate of interest claimed in both actions are the same, as issue preclusion requires. However, the Law Division Action contained a per diem interest rate of $269.02, while the judgment in the Foreclosure Action contained a per diem rate of $367.65. When the note and the mortgage provide for an identical per diem rate, issue preclusion requires that the per diem rate should be the same in both actions. It was error to use the per diem rate of $367.65 in the Foreclosure Action. In contrast, because plaintiff did not claim default interest and prepayment penalties in the Law Division Action, which is consistent with the authorization in the documents, issue preclusion will not bar those categories of damages in the Foreclosure Action. [First Union, supra, 190 N.J. at 356.]

Accordingly, on May 10, 2007, the Court remanded the case to the Chancery Division to reconsider and resolve the correct amount of the foreclosure judgment based on the Court's guidance in the opinion.

However, while the appeal of the foreclosure judgment was pending, the bank sought to have the property sold at sheriff's sale. Hitchner forestalled the sheriff's sale by filing a bankruptcy petition and made several unsuccessful attempts to sell the marina. Finally, the parties entered into a consent order in the Bankruptcy Court, vacating the automatic stay but giving Hitchner one last chance to sell the property. In the consent order, the parties agreed to stay the sheriff's sale until September 15, 2006, after which the bank was permitted to proceed with the sale. When Hitchner failed to sell the marina by the agreed-upon date, the sheriff's sale was re-listed for September 25, 2006. The sale notice, which was sent to defendants' attorney on September 13, 2006, listed a redemption price of $1,244,852.63, including accumulated interest and sheriff's fees. There were no bidders, and the bank purchased the property for nominal consideration of $100. Despite having received notice of the impending sheriff's sale, Hitchner did not file a motion with the Chancery Division to stay the sale.

However, Penn Salem, which did not own the marina, filed a motion after the sale, objecting to the confirmation of the sale and seeking a stay of delivery of the sheriff's deed pending the Supreme Court's decision of the First Union appeal. See R. 4:65-5 and -6. The motion, by its terms, sought a stay pending a final determination as to the amount of the mortgage debt and as to the amount of the fair value credit to which the debtor was entitled.*fn2 By order dated November 6, 2006, the Chancery Division confirmed the sale and denied the stay application. The November 6 order contemplated that the court would hold a fair value hearing after the Supreme Court rendered its decision; however, the judge later clarified that the hearing was to be held only if the bank pursued a deficiency action. At the time the order was entered, the bank was pursuing a separate legal action against Hitchner's son, who had guaranteed the note. The November 6 order also stayed collection actions against the son.*fn3

Neither defendant applied to this court for a stay of the November 6 order, which permitted the sheriff to deliver the deed to the bank. Hitchner did not seek an extension of the ten-day redemption period after the sheriff's sale. Neither defendant sought to redeem the property by offering the amount of either the Law Division judgment or the foreclosure judgment. On February 19, 2007, the bank sold the property to a third party for $975,000, which was more than the Law Division judgment but less than the foreclosure judgment.

After the Supreme Court remanded the matter to the Chancery Division in May 2007, defendants filed a motion to void the transfer of title to the property and compel a new foreclosure sale, or in the alternative to compel plaintiff to compensate defendant for the full value of the property. In opposing the motion, the bank filed a certification setting forth a detailed, corrected proof of the amount due as of the January 13, 2005 foreclosure judgment. Employing the methodology required by the Court's decision, the bank calculated the amount due as of January 13, 2005, to be $1,148,111.44, or approximately $2000 less than the original judgment. The recalculated amount due was still approximately $175,000 more than the $975,000 for which the bank sold the marina to the third party. Defendants ...

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