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First Union National Bank v. Penn Salem Marina

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


March 12, 2009

FIRST UNION NATIONAL BANK, AS INDENTURE TRUSTEE, PLAINTIFF-RESPONDENT,
v.
PENN SALEM MARINA, INC., MARVIN HITCHNER, JR., DEFENDANTS-APPELLANTS, AND MARVIN K. HITCHNER, III AND FGS ASSOCIATES, L.L.C., DEFENDANTS.

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

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

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.

I.

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 did not file any opposing proofs concerning the amount due, nor did they raise any specific issues concerning the elements of the bank's calculation, thus leaving the bank's calculation uncontested.*fn4

Significantly, during the trial court proceedings on remand, the bank specifically waived its right to file a deficiency action against either the defendants or Hitchner's son, a waiver it re-affirmed at oral argument of this appeal. However, defendants nonetheless urged that the trial court should void the original sheriff's sale, void the bank's sale of the property to the third party, and order a new sheriff's sale. Alternatively, defendants sought compensation for any difference between what they claimed was the higher fair market value of the property and the debt they owed the bank.

Judge Rafferty denied the motion:

There is no legal basis for the voiding of the sheriff's sale and the voiding of a subsequent arms length transaction by the purchaser at sheriff's sale to a third party. The legal arguments made by the Defendant are unpersuasive. Regarding the requested relief to compensate the Defendant for the full value of the property, this court also finds no legal or factual basis to do so. There is no persuasive evidence to indicate that the $975,000.00 sale by the Plaintiff to a third party was anything but an arms length transaction. There certainly is no basis for a fair value determination at this time. In October of 2006, this court made the determination that a fair value hearing could possibly be necessary in the event that there would be a deficiency action or an action against the guarantors for collection of an amount not recovered by the Plaintiff. It is clear from the record that there is not contemplated any deficiency action nor any further proceedings against the guarantors in this matter.

The judge also rejected defendants' contention that they should be entitled to "recover an amount in excess of the Judgment received by the plaintiff after a third party sale." He concluded "[t]here is no legal basis for such a claim and, therefore, the Defendant's application for compensation for the fair market value of the property is factually and legally inappropriate in this case."

II

On this appeal, defendants present the following points for our consideration:

POINT I.

THE TRIAL COURT ERRED IN WHOLLY DISREGARDING THE LEGAL CONCEPT OF RESTITUTION AS ARGUED BY THE APPELLANTS.

POINT II.

THE TRIAL COURT ATTACHED UNDUE SIGNIFICANCE TO THE APPELLANTS' FAILURE TO OBTAIN A STAY OF THE SEPTEMBER 2006 SHERIFF'S SALE, AND DISREGARDED THE APPELLANTS' CONTEMPORANEOUS REQUEST TO STAY THE CONFIRMATION OF THAT SALE.

POINT III.

THE TRIAL COURT ERRED IN ACCEPTING [PLAINTIFF'S] REPRESENTATIONS AS TO THE CIRCUMSTANCES SURROUNDING THE RESALE OF THE SUBJECT MARINA, THE FAIR MARKET VALUE THEREOF, AND THE PROPER AMOUNT OF THE FORECLOSURE JUDGMENT, WITHOUT PROVIDING DISCOVERY TO THE APPELLANTS AND SCHEDULING A PLENARY HEARING TO TEST THOSE PROOFS.

POINT IV.

THE TRIAL COURT ALSO ERRED IN REJECTING THE APPELLANTS' ALTERNATIVE ARGUMENT SEEKING THE SET-ASIDE OF THE SHERIFF'S SALE ON THE BASIS THAT THE ORIGINAL JUDGMENT WAS VOID.

We conclude these arguments are completely without merit and warrant no discussion beyond the following comments. R. 2:11-3(e)(1)(E).

Our review of the trial court's decision of a summary judgment motion is de novo. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). Like the trial court, we consider whether there are material facts in dispute and, if not, whether the evidence, viewed in the light most favorable to the non-moving party, nonetheless requires judgment for the moving party as a matter of law. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

First, we do not construe the Supreme Court's decision to necessarily require that the final judgment of foreclosure be vacated. Rather, it required that the amount due be recalculated to ensure that the judgment was for the correct amount. For that purpose, the original Law Division judgment was binding as to the types of damages sought in the Law Division action, but plaintiff was free to include such additional elements of damages as were permitted in the foreclosure action. First Union, supra, 190 N.J. at 356. The undisputed legally competent evidence before the trial court on remand established that a properly-calculated foreclosure judgment would have been virtually the same as the original foreclosure judgment.*fn5

We find no abuse of discretion or other error in the trial court's refusal to set aside the foreclosure judgment and void the sheriff's sale. Calculation of the final foreclosure judgment prior to a sheriff's sale serves several purposes: it sets a sum certain which the mortgagor must pay to redeem the property either before the sale or within ten days after the sale, prior to the sheriff's delivery of the deed to the auction purchaser; it sets an "upset" or minimum price which a bidder other than the mortgagee must offer at the sale; and it provides the basis for a deficiency action against the mortgagor if the sheriff's sale does not raise an amount at least equal to the judgment. See 30A New Jersey Practice, Law of Mortgages §§ 31.34 and 35.5A (Myron C. Weinstein)(2d ed. 2000).

There is no evidence in this case that the $2000 difference between the original and re-calculated judgments had any effect on the defendants' ability to redeem the property. They never tendered any amount to redeem the property. Further, there is no evidence, or even any suggestion, that a $2000 difference in the upset price had the effect of deterring anyone from bidding at the sheriff's sale.*fn6 And, finally, plaintiff waived its right to bring a deficiency action against defendants or to sue Hitchner's son on his guarantee of the debt. Given these facts, setting aside the foreclosure judgment and voiding the sheriff's sale would only delay the foreclosure process, interfere with the rights of the third-party to which the bank sold the property, and otherwise serve no legitimate purpose.

Defendant's reliance on Bernoskie v. Zarinsky, 394 N.J. Super. 421 (App. Div. 2007), is completely misplaced. That case concerned a judgment debtor's right to recoup from the judgment creditor, following the debtor's successful appeal of the judgment, amounts the creditor had collected while the judgment was on appeal. In this case, the foreclosure itself was not overturned and, as discussed above, there is no basis to void the foreclosure judgment or set aside the sheriff's sale. In fact, there is no basis to do anything more than modify the original judgment by approximately $2000, a technicality made moot by plaintiff's waiver of its right to any further collection of the judgment. Sonderman v. Remington Construction Co., 127 N.J. 96 (1982), a case in which the property owner was not served with the foreclosure complaint, is likewise not on point here.

Moreover, we find no merit in defendants' claim to the difference between the alleged higher fair market value of the property and the $975,000 for which the bank eventually sold the property to a third party. If a property is sold at sheriff's sale for more than the amount of the foreclosure judgment, the debtor is entitled to the excess. See N.J.S.A. 2A:50-37.

However, if the property is sold at the auction for less than the amount of the judgment, the debtor has no right to a fair value hearing unless the creditor files a deficiency action. See N.J.S.A. 2A:50-3; First Trust Nat'l Assoc. v. Merola, 319 N.J. Super. 44, 50-51 (App. Div. 1999); Sovereign Bank, FSB v. Kuelzow, 297 N.J. Super. 187, 194 (App. Div. 1997). In a lawsuit to collect the deficiency between the sheriff's sale proceeds and the foreclosure judgment, the debtor is entitled to be credited with the difference between the price for which the property was sold at the foreclosure sale and the property's fair market value. N.J.S.A. 2A:50-3.

However, once the property is sold at auction, even if the mortgagee buys the property at the foreclosure sale, the mortgage debtor has no further rights in the property itself, beyond a limited right to redeem prior to the delivery of the sheriff's deed to the auction purchaser. See R. 4:65-5 and -6; Hardyston Nat'l Bank v. Tartamella, 56 N.J. 508, 513 (1970). In particular, the debtor has no right to share in the proceeds of a later sale to a third party. See Sovereign Bank, supra, 297 N.J. Super. at 194. Consequently, defendants had no right to take discovery, or to have an evidentiary hearing in support of such a claim.

Affirmed.


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