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Carvajal v. Business Lenders


August 5, 2009


On appeal from Superior Court of New Jersey, Law Division, Special Civil Part, Morris County, Docket No. DC-8663-06.

Per curiam.


Argued February 10, 2009

Before Judges Fuentes, Gilroy and Chambers.

Plaintiff Martha Carvajal, d/b/a American Podiatric Medical Center, filed suit against defendant Business Lenders, L.L.C., (Business Lenders) in the Law Division, Special Civil Part, to recover counsel fees she paid defendant as part of its claim associated with an outstanding debt. Business Lenders' demand for counsel fees was derived from a promissory note and personal guarantee executed by Carvajal to induce Business Lenders to extend a commercial loan. In addition to the note, Carvajal also gave Business Landers a third mortgage on property she owned.

The trial court dismissed Carvajal's action, finding that Business Lenders was entitled to recover attorney fees and costs under the terms of the promissory note. In so doing, the court rejected Carvajal's arguments that the fees were not permitted under Rule 4:42-9(a)(4), as made applicable under the New Jersey Fair Foreclosure Act, N.J.S.A. 2A:50-53 to -68.

We agree with the trial court and affirm. These are the facts.

On August 17, 2000, Carvajal borrowed $115,000 from Business Lenders, to provide an infusion of cash in support of Carvajal's podiatric practice. Carvajal executed a promissory note, and a personal guarantee, and gave Business Lenders a third mortgage on her residential property. Carvajal's property was already encumbered by a first mortgage held by Greenpoint Mortgage to secure its $115,000 loan, and a second mortgage held by B&B Funding to secure a $70,000 loan.

The mortgage agreement securing Business Lenders' loan provided in part:

Without notice and without Borrower's consent, Lender may:

Incur expenses to collect amounts due under this Note, enforce the terms of this Note or any other Loan Document, and preserve or dispose of the Collateral. Among other things, the expenses may include payments for property taxes, prior liens, insurance, appraisals, environmental remediation costs, and reasonable attorney's fees and costs. If Lender incurs such expenses, it may demand immediate repayment from Borrower or add the expenses to the principal balance.

Carvajal also signed a personal guarantee providing that: "Guarantor (YOU) promises to pay all expenses Lender (BUSINESS LENDERS) incurs to enforce this Guarantee, including, but not limited to, attorney's fees and costs." (Emphasis added.)

Carvajal eventually defaulted on her obligation to make regular payments on all three loans. By letters dated April 23, and October 22, 2001, Business Lenders notified Carvajal of her default status. These letters also emphasized that, in addition to her obligation to pay the outstanding principal and interest, Carvajal was also liable to pay Business Lenders' attorney's fees incurred in connection with any collection effort. Carvajal did not make any further payments on this loan.

In December 2001, Carvajal filed a Chapter 13 bankruptcy petition in the United States Bankruptcy Court seeking "to reorganize [her] debts." She proposed a bankruptcy plan that did not provide any cure of the default on Business Lenders' loan. This plan was never confirmed by the Bankruptcy Judge, and Carvajal's petition was dismissed in November 2002.

Between December 2002 and February 2003, Carvajal attempted to refinance her property to pay off her outstanding loans. During this time, Carvajal was in regular contact with the attorneys representing Business Lenders, in an attempt to negotiate a possible settlement. These efforts proved unsuccessful.

In February 2003, Greenpoint Mortgage, the mortgagee holding the first mortgage on Carvajal's property, filed a foreclosure action, resulting in a judgment of foreclosure in its favor entered in June 2003. This foreclosure judgment directed a Sheriff's sale of the property without any provision for the payment of the loan issued by Business Lenders. At Carvajal's behest, the Sheriff's sale was postponed three times between August 2003 and January 2004, while she attempted to sell the property to a private buyer. Once again, these efforts proved fruitless.

In January 2004, Carvajal filed a second bankruptcy petition, effectively staying the second Sheriff's sale. This time, Carvajal's bankruptcy plan included Business Lenders as a creditor, but did not propose to cure the entire default. In response to Carvajal's petition, Greenpoint Mortgage (the first mortgagee) obtained leave from the bankruptcy court to proceed with the Sheriff's sale.

Carvajal once again moved before the bankruptcy court for a stay, seeking approval to sell the property to a private buyer. The Sheriff's sale was again postponed. After several failed attempts, Carvajal finally reached an agreement with a private buyer; on July 28, 2005, the property was sold for $335,000. Carvajal used the proceeds of this sale to pay off all of the outstanding loans involving the property, including Business Lenders.

At Carvajal's request, Business Lenders sent her a statement of account itemizing the outstanding balance due and owing. It listed $1,050 for appraisal fees, and $10,375.96 in counsel fees. Carvajal received the statement on July 12, 2005, two weeks before the scheduled closing date. Business Lenders did not provide an explanation or documentation on how it determined the amount of attorney fees. According to Carvajal, she was pressured into agreeing to pay these fees because Business Lenders would not give her a written discharge of its third mortgage, thus preventing her from delivering clear title to the buyer.

In a letter dated September 12, 2006, (more than a year after the date of closing) Carvajal, through her counsel, objected to the amount of legal fees, arguing that they were in violation of Rule 4:42-9, and rejecting the appraisal fees as unjustified. She also demanded a refund of the fees and a copy of the actual legal bill. Business Lenders rejected Carvajal's claims, and indicated that the file had been closed. This law suit followed.

Following a bench trial, Judge Wright issued a memorandum of opinion dated December 6, 2007, finding in favor of Business Lenders. After reviewing the evidence presented, Judge Wright found that Business Lenders incurred "substantial legal fees and costs in pursuing its rights in both [bankruptcy] actions as well as a third action in Foreclosure." With respect to Carvajal's argument predicated on Rule 4:42-9(a)(4) as applied through the Fair Foreclosure Act, Judge Wright held that Business Lenders was contractually entitled to recover costs and counsel fees under the promissory note. The limitations imposed by the Fair Foreclosure Act are not applicable here because Business Lenders did not institute a foreclosure action against Carvajal.

We agree and affirm substantially for the reasons expressed by Judge Wright.


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