May 21, 2009
BAYVIEW LOAN SERVICING, LLC, PLAINTIFF-APPELLANT/CROSS-RESPONDENT,
DAVID ROBINSON, HIS HEIRS, DEVISEES, AND PERSONAL REPRESENTATIVES, AND HIS, THEIR OR ANY OF THEIR SUCCESSORS IN RIGHT, TITLE AND INTEREST, DEFENDANT-RESPONDENT/CROSS-APPELLANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Cape May County, Docket No. F-6782-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted: April 29, 2009
Before Judges Cuff and C.L. Miniman.
Plaintiff Bayview Loan Servicing, LLC, appeals from the February 4, 2008, judgment determining that the "lockout fee" in Paragraph 7(a) of the Adjustable Rate Promissory Note*fn1 executed by defendant David Robinson was an unenforceable penalty and that the amount due plaintiff was $391,827, including attorney's fees. Defendant cross-appealed from the portions of the judgment that determined plaintiff's entitlement to default interest,*fn2 prepayment consideration,*fn3 and late charges;*fn4 that established the amount due under the promissory note; and that set the payoff amount due as of February 29, 2008. We dismiss the appeal as moot, because plaintiff accepted payment and discharged its mortgage, and we affirm on the cross-appeal.
Plaintiff instituted a foreclosure action against defendant's property on March 12, 2007. Defendant filed an answer and counterclaim asserting that plaintiff had not sent a notice of intent to foreclose under the Fair Foreclosure Act, N.J.S.A. 2A:50-53 to -68, at least thirty days in advance of filing the complaint as required by the Act, N.J.S.A. 2A:50-56(a). Defendant also asserted that plaintiff created the delinquency by failing to accept payment in the amount specified in plaintiff's notice of default.
While the foreclosure was pending, defendant located a buyer for the property in April 2007 and the parties negotiated a settlement of the contested foreclosure action. Plaintiff verbally agreed to hold the foreclosure in abeyance until October 31, 2007, to allow time for the closing and defendant agreed not to contest the foreclosure if the closing did not occur by that date. The Chancery judge was advised of the settlement on July 12, 2007, and he entered an order on that date deeming the defendant's answer uncontested and barring a sheriff's sale prior to October 31.
Plaintiff issued a payoff statement on October 4, 2007. The loan in the original amount of $297,500 was dated August 29, 2006. The payoff statement indicated that the following sums were due effective November 1, 2007:
$297,269.59 Unpaid principal
1,919.18 Document prep., unpaid late charges, fax, &c.
14,863.48 Prepayment consideration
250.00 Release fees
2,526.00 Legal fees
29,809.53 Default interest
7,425.03 Other funds owed by borrower
-20.00 Unapplied funds owed to borrower
70,223.75 Lockout fee
Deeming the payoff statement in violation of the parties' settlement agreement, defendant filed a motion to reform it, contesting the demand for $14,863.48 for prepayment consideration; $29,809.53 as default interest; and $70,223.75 as a lockout fee. Thus, defendant disputed $114,896.76 of the amount claimed to be due. Specifically, he contended that the prepayment consideration contained in Paragraph 7 of the note did not apply to him because his prepayment was the product of "a mutually agreed settlement for consideration made between the parties." He argued that the final clause of that paragraph exempted him from prepayment consideration because his property contained one commercial unit. He also urged that Paragraph 7 was unenforceable as a matter of law because the interest rates were so unconscionably high as to amount to a penalty rather than constituting reasonable liquidated damages. As to the default interest, defendant contended that he was not in default because plaintiff had wrongfully rejected the payment he made pursuant to its default notice. The motion was opposed, plaintiff contending that all of the charges were liquidated damages under the original note and enforceable as such.
After the parties declined to present testimony respecting the reasonableness of the prepayment consideration, default interest, and lockout fee, the judge heard oral argument on the motion, placed his decision on the record, and issued the order under review. The judge concluded that plaintiff was entitled to proceed with the foreclosure and to recover default interest. As to the reasonableness of the rate, he found that it was affected by the financial markets at the time the loan was made and that the percentage increase per se was not determinative. He noted that the rate was presumptively reasonable with the burden to prove otherwise on the borrower. Because defendant had not "been able to present any specific proofs going to the reasonableness of this particular charge," the judge concluded that he could not find the specific rate unreasonable. He came to the same conclusion with respect to the late charges and the prepayment consideration.
The judge turned then to the interest to be paid from and after November 1, 2007. He concluded that the delay in repaying the loan was occasioned by plaintiff's improper demand for the lockout fee and on equitable grounds limited interest from November 1, 2007, to the date of payment to the ordinary contract rate. He determined that the payoff amount was $391,827 plus interest at 10.75% thereon from November 1, 2007, to the date of closing. Additional attorneys' fees were disallowed. Defendant objected to interest on the full amount due, but the judge explained that he was limiting interest to the contract rate on the theory that the loan would have been paid on November 1, 2007, and so interest on the full amount was appropriate because it had not been paid at that time.
In his subsequent written opinion, the judge reiterated that defendant failed to meet his burden to prove that the late charges and default interest were unreasonable because he did not adduce any evidence that would support a conclusion that the specific interest rate did not bear some relationship to the losses or costs plaintiff would face in the event of a default. He concluded that the lockout fee could not be treated as a reasonable form of liquidated damages and was unenforceable as a penalty. The judge did not address in either opinion defendant's claim that he was exempt from prepayment consideration pursuant to the Paragraph 7 of the note.
On February 22, 2008, plaintiff accepted $409,480.57 in full satisfaction of its loan. Plaintiff then discharged its mortgage and marked the note paid in full. It did not apply to the court for a stay and an order to escrow the invalidated lockout fee, as the judge suggested may be necessary if it was going to appeal. Defendant argues that plaintiff's appeal is moot because plaintiff is barred by N.J.S.A. 2A:50-1 from seeking a judgment on the note in excess of the proceeds of the sale of the mortgaged property. This is so, he urges, because a foreclosure proceeding is considered a quasi-in-rem action, which only affords relief against the land itself and not against the borrower, citing Central Penn National Bank v. Stonebridge, Ltd., 185 N.J. Super. 298, 302 (Ch. Div. 1982).
We are satisfied that, in these circumstances, plaintiff's appeal is moot because it has accepted full redress from the land without seeking to have the lockout fee placed in escrow pending appeal and we cannot grant any further judicial relief to it. See Enron (Thrace) Exploration & Prod. BV v. Clapp, 378 N.J. Super. 8, 13 (App. Div.), certif. denied, 185 N.J. 392 (2005) (defining mootness in terms of prior resolution of disputed issue). If plaintiff wished to preserve the issue of the lockout fee for appeal, it should have forced a sheriff's sale to preserve its right to seek a deficiency judgment in a subsequent action or sought an order compelling an escrow for the lockout fee pending appeal. By discharging its mortgage and marking the note paid in full, it rendered this appeal moot.
Plaintiff urges that we should nonetheless exercise our discretion to address the merits of its appeal because the issues raised are of substantial importance or are likely to recur but evade review, citing Wells Fargo Home Mortgage, Inc. v. Stull, 378 N.J. Super. 449, 453 (App. Div.), certif. denied, 185 N.J. 267 (2005). In Wells Fargo, the issue concerned adjournments of sheriff's sales, which the chancery judge had delegated to the sheriff. Id. at 451. Although Wells Fargo did not request any additional adjournments after this delegation of authority, the parties and county counsel agreed that this practice in the county continued on other matters. Id. at 452. We held, as a result, that we choose to decide the issues raised because they are of substantial importance and are likely to reoccur but are also capable of evading review. Zirger v. Gen[.] Acc[ident] Ins. Co., 144 N.J. 327, 330 (1996); Bankers Trust [Co. of Cal., N.A. v. Delgado], 346 N.J. Super. [103,] 106 n.1 [(App. Div. 2001)]. In this regard, our concern is heightened by the fact that the order in question has an undeniable chilling effect on the availability of adjournments that a judgment creditor in Warren County may request or consent to, and mistakenly purports to imbue the Sheriff with discretion he does not otherwise possess. In that sense, the order contradicts what we said in Bankers Trust, is inconsistent with the overarching intent of the Fair Foreclo-sure Act, and compels our review of the merits of the parties' contentions. [Wells Fargo, supra, 378 N.J. at 453.]
Here, plaintiff contends that the trial court erred in ruling that the lockout fee was unenforceable as a penalty, in considering defendant's motion to reform the payoff statement, and in fixing the date through which interest could be charged as November 1, 2007. These are not issues of substantial importance and we decline to exercise our discretion to entertain plaintiff's appeal. Although they may recur by virtue of similar promissory notes that go into default, the lockout fee ruling will not evade review so long as plaintiff does not proceed as it did here. We, therefore, dismiss the appeal as moot.
Turning to defendant's cross-appeal, he asserts that the trial court erred in enforcing the default interest rate because defendant had challenged the fact of a default in his counter-claim and the parties thereafter settled the counterclaim with defendant understanding the default interest would not apply. He also urges that default interest was unreasonable under the totality of the circumstances and that the judge erred in applying interest to the full amount due from November 1, 2007, and in failing to find that plaintiff breached the implied covenant of good faith and fair dealing.
As to the latter issue, we have searched the record in depth, including the brief submitted in support of the subject motion and find no reference to any breach of the covenant of good faith and fair dealing.
It is a well-settled principle that our appellate courts will decline to consider questions or issues not properly presented to the trial court when an opportunity for such presentation is available unless the questions so raised on appeal go to the jurisdiction of the trial court or concern matters of great public interest. [Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973) (internal quotation omitted).]
The issue present here does not go to the jurisdiction of the Chancery Division nor does it concern a matter of great public importance. As a result, we decline to consider it.
Turning to defendant's claim that he was not in default and that the parties compromised that issue, the argument on appeal is not supported by the record below. There was no written settlement agreement. Defendant did not submit a certification in support of his motion to reform the payoff statement and did not testify at the scheduled plenary hearing. Defense counsel merely certified, "The parties entered into a settlement wherein the Defendant agreed not to contest the foreclosure in exchange for the Plaintiff's agreement to wait for payment until the closing as long as it occurred prior to October 31, 2007." Thus, defendant has not met his burden to prove the specific terms of the settlement and we find no error in enforcing the default interest, prepayment consideration, and late charges.*fn5
Defendant next contends that the default interest was unreasonable as a matter of law without the need to offer any expert testimony establishing a factual predicate for such a finding. He relies on MetLife Capital Financial Corp. v. Washington Avenue Associates, L.P., 159 N.J. 484 (1999), Westmark Commercial Mortgage Fund IV v. Teenform Associates, L.P., 362 N.J. Super. 336 (App. Div. 2003), and an unpublished Law Division opinion that has no precedential effect.
In MetLife, a mortgagee employee testified "that a five percent late fee was the industry custom and standard, and represented an estimate of the internal costs of administering late payments." 159 N.J. at 490. She described the activities of the department that handles delinquent payments and also "testified that the default interest rate was intended to compensate MetLife for losses resulting from increased administrative costs, lost investment opportunities, the need for appraisals and environmental studies, litigation costs and attorneys' fees." Ibid.
The mortgagor produced rebuttal testimony from an experienced bank loan officer. Ibid. He "testified that in the event of a late payment a loan officer typically made a short phone call to the borrower and waited for payment. In his experience, the loan officer was the only person involved in collection efforts until the payment was several months overdue." Ibid. He also testified that the costs of administering a loan were not affected by the principal amount of the loan, although he acknowledged that the financial institution where he worked generally charged default rates of interest between four and six percent. Id. at 490-91.
The Supreme Court observed that "liquidated damages provisions in a commercial contract between sophisticated parties are presumptively reasonable and the party challenging the clause bears the burden of proving its unreasonableness." Id. at 496. The Court concluded that a five percent late payment fee was reasonable in light of the mortgagee's testimony and a variety of state statutes and federal regulations permitting four- and five-percent fees as a percentage of a late payment. Id. at 497-98. The Court concluded, "A five percent fixed late charge negotiated between sophisticated commercial entities, is, in these circumstances, a valid measure of liquidated damages." Id. at 500.
With respect to default interest, the Court held that "default interest rates, like late fees, are presumed reasonable." Id. at 501. It noted that the mortgagee "presented evidence that industry custom provides for default rates of fifteen percent to eighteen percent." Ibid. It held, "Like late charges, default charges are subject to the reasonableness test. A default provision providing for an unreasonable increase in the contract interest rate is unenforceable as a penalty." Ibid. The default rate of fifteen percent had been reduced by the trial court to 12.55%, which was reversed by us as a penalty. The Supreme Court reinstated the rate set by the trial court, but did not reach the issue of the reasonableness of the fifteen-percent default rate because MetLife had not cross-appealed the trial-court determination. Id. at 502.
In Westmark, the late fees were six percent, the default rate was two percent higher than the contract rate, and a pre-payment premium was in an amount not specified in the opinion. 362 N.J. Super. at 340, 342-43. As to the default rate, we concluded, "Based upon the result reached in MetLife and defendants' total failure to present any proof to the contrary, the Chancery Division judge correctly determined the ten percent default interest rate to be reasonable." Id. at 342 (emphasis added).
Defendant has not cited any case in which a default rate has been determined to be per se unreasonable, including one for a default interest rate in excess of the contract rate, where the court did not consider the factors identified by MetLife for determining the reasonableness of a liquidated damages clause. In MetLife the Court summarized the test for reasonableness it announced in Wasserman's, Inc. v. Township of Middletown, 137 N.J. 238 (1994), where the Court concluded that "[s]o viewed, 'reasonableness' emerges as the standard for deciding the validity of stipulated damages clauses."
Id. at 249. Treating reasonableness "as the touchstone," we noted that the difficulty in assessing damages, intention of the parties, the actual damages sustained, and the bargaining power of the parties all affect the validity of a stipulated damages clause.
Id. at 250-54. We did not, however, consider any of those factors dispositive, and remanded the case, leaving "to the sound discretion of the trial court the extent to which additional proof is necessary on the reasonableness of the clause." Id. at 258. [MetLife, supra, 159 N.J. at 495.]
We decline to create a per se rule here. Defendant failed to offer any evidence that would permit a conclusion that the default interest rate here, 20.75%, was unreasonable. In this respect, we are aware that the rate is high but, as the Chancery judge observed, rates of interest change over time and what may be reasonable at one point in time may not be reasonable at another. The judge correctly concluded that defendant did not meet its burden of proof in this respect.
This leaves only the issue of the contract rate of interest, which the judge imposed on sums in excess of principal. Defendant simply contends that plaintiff was not entitled to same. The judge allowed interest at 10.75% per annum from and after November 1, 2007, on the entire sum as an exercise of his equitable discretionary powers, not as a matter of contract law. This amounted to roughly $3388 on the $94,558 in charges in excess of principal over roughly four months. We find no mistaken exercise of discretion here. Because some of the disputes were resolved in favor of plaintiff, the judge could just have readily allowed the default rate of interest on the outstanding principal, which would have amounted to roughly $20,561, and also included monthly late charges for four months, or roughly $652.