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Herdelin v. Sherlock


November 25, 2009


On appeal from the Superior Court of New Jersey, Chancery Division, Cape May County, Docket No. F-12842-04.

Per curiam.


Argued November 10, 2009

Before Judges Fuentes, Gilroy and Simonelli.

Defendants William F. Sherlock and Patricia Sherlock appeal from the April 23, 2009 Chancery Division order denying their motion to vacate a final judgment of foreclosure. We reverse the order, set aside the sheriff's sale, and remand for entry of an amended judgment.

This matter has a long and tortured history, which we do not recite in full. Rather, we focus on the following facts relevant to our review. Defendants owned property located at 106 119th Street in Stone Harbor. On July 22, 2003, defendants executed a mortgage note and mortgage to plaintiff Robert Herdelin for $1,789,570.91 together with interest at eleven percent per annum. The mortgage term was for one year with two one-year options and an additional ninety day option to extend. The following provisions in the mortgage commitment and memorandum of agreement (the mortgage commitment) governed the option to extend:

3. Option to Extend: Lender has granted to borrower the right to two additional one year extensions based on a[n] agreement by borrower to pay an additional 1% fee each year and a pre-payment of interest at the same rate of 11% based upon the outstanding principal balance at the time of extension. Borrower and lender agree that at the expiration of the second option term borrower shall have the right to extend for an additional three months upon the payment of pre-paid interest for those three months without any additional fees.

5. Interest Rate: Lender agrees to lend to borrower the sum set forth above at 11% simple interest on all amounts advanced by lender at closing. Borrower agrees that any additional option year extensions exercised by borrower shall also require a 1% administrative fee except for the final three month extension set forth above. Defendants' attorney prepared all of the above documents.

It is undisputed that defendants paid one year of interest in advance but made no payments thereafter. As a result, as of July 23, 2004, defendants were in default, and plaintiff immediately instituted a foreclosure action, which defendants' counsel vigorously defended. In July 2004, defendants also filed a complaint in the federal district court for the Eastern District of Pennsylvania, seeking to rescind the mortgage.

On January 14, 2005, the court in this matter entered an order granting plaintiff summary judgment, striking defendants' answer and affirmative defenses. The court did not fix an amount due and forwarded the matter to the Foreclosure Unit for consideration of an application to enter final judgment. The court also ordered that no execution on a final judgment, including a Sheriff's sale, shall occur pending resolution of the federal action.

In March 2005, plaintiff filed a motion to enter judgment. On May 23, 2005, the Foreclosure Unit declined to enter judgment due to certain deficiencies in the application, and because the January 14, 2005 order prohibited execution on a final judgment.

Plaintiff then filed a motion for partial summary judgment in the federal action. On March 17, 2008, the federal court entered an order granting the motion. Shortly thereafter, on April 29, 2008, plaintiff filed a motion to vacate the January 14, 2005 order and to permit the foreclosure to proceed. Defendants' counsel opposed the motion and requested that it be stayed pending the outcome of mediation in the federal action. On May 28, 2008, the court entered an order vacating the January 14, 2005 order and permitting plaintiff to apply for judgment and obtain a writ of execution.

Defendants filed a motion for reconsideration. The court entered an order on July 24, 2008, denying the motion and permitting plaintiff to proceed with an application for entry of judgment after computation of the amount due. The court also permitted defendants to file a motion if they disputed the amount plaintiff claimed was due.

On July 2, 2008, plaintiff filed a motion for entry of final judgment and served the motion papers on defendants' then counsel of record.*fn1 Plaintiff provided proof of an amount due of $2,755,939.11, which included interest of $787,441.20 at eleven percent per year from July 22, 2004 to July 23, 2008 ($196,852.80 per year); an extension fee of $89,478.50 due under the option to extend in paragraph 3 of the mortgage commitment at one percent per year for the same period ($17,895.70 per year); and a one percent administrative fee of $89,478.50 due under paragraph 5 of the mortgage commitment for the extension period ($17,895.70 per year).

Defendants did not oppose the motion. They also did not file an objection, as required by Rule 4:64-1(d). Nevertheless, on August 7, 2008, their attorneys participated in the hearing to determine the amount due, after which the court entered a final foreclosure judgment in the amount of $2,755,939.11, which included $876,889.70 for interest and extension and administrative fees. Defendants did not file a motion to dispute the amount plaintiff claimed was due, a motion for reconsideration, or a notice of appeal.

Thereafter, defendants obtained adjournments of and made numerous attempts to further adjourn a Sheriff's sale. When all of their efforts failed, on March 17, 2009, they filed a motion to vacate the judgment under Rule 4:50-1(c),*fn2 claiming, in part, that plaintiff fraudulently misrepresented the amount due by (1) "purposely and in bad faith" delaying seeking final judgment for three years and seven months after entry of summary judgment "so that interest at 11% could continue to accumulate on the outstanding note;" and (2) fraudulently obtaining extension and administrative fees by unlawfully exercising their option to extend. Defendants argued that $565,075.87 of the judgment is fraudulent (calculated at $386,118.87 excess interest accrued during the delay, $89,478.50 for extension fees, and $89,478.50 for administrative fees).

The court denied the motion. As to defendants' delay contention, the judge found as follows:

There is no question that the defendant[s] had been attempting to delay the matter virtually from the beginning. It is also entirely legitimate to suggest that to the extent defendants have acted to delay the matter over time, it would be appropriate to charge defendant[s] with interest at the contract rate. Most importantly, I note that the defendants continued to resist the entry of judgment through 2008. In the end, it seems to me this particular claim is simply not viable.

As to defendants' fraud contention, the judge found as follows:

[Rule 4:50-1(c)] permits relief from a judgment based on fraud or misrepresentation. I am satisfied that [defendants have] not established that the plaintiff engaged in any such conduct. The application for judgment at issue was on notice. It dealt directly with the issues which are the subject of the pending [m]otion. The application for judgment was supported by a certification which was provided both to the Court and to the defendants' attorneys. That certification specifically addressed the amounts which defendant[s] now dispute[], in language which recognized that potential dispute[] might be raised. There is simply no basis for suggesting that the application for judgment involved a misrepresentation made by plaintiff with the intention that either the Court or the defendant would rely on such misstatement. To the contrary, plaintiff's application for judgment appears to have been open and direct. I see no basis for concluding that the judgment was the product of either fraud or misrepresentation.

This appeal followed.

We first express our concern that defendants never raised their fraud allegation prior to entry of the final judgment. There is no doubt that their attorney timely received the motion to enter judgment and plaintiff's proof of amount due, and thus, knew that the affidavit allegedly contained fraudulent misrepresentations. Defendants did not file an objection or a motion disputing the amount plaintiff claimed was due.

Nevertheless, we agree with the trial judge that the facts do not establish that plaintiff unreasonably delayed this matter in order to collect interest at eleven percent instead of judgment rate interest. To the contrary, the record reveals that plaintiff acted promptly, and that defendants contributed to the delay. Thus, plaintiff is entitled to interest of $787,441.20 at eleven percent per year from July 22, 2004 to July 23, 2008.

As to the extension and administrative fees, we agree with the trial judge that the facts do not establish clearly and convincingly all of the elements of fraud, which are: (1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages. Triffin v. Automatic Data Processing, Inc., 394 N.J. Super. 237, 246 (App. Div. 2007) (citing Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997)). The facts also do not establish clearly and convincingly all of the elements of perjury, which are that the testimony was: (1) was willfully false; (2) material to the result; and (3) not earlier discoverable by reasonable diligence. See Pressler, Current N.J. Court Rules, comment 5.3 on R. 4:50-1 (2010) (citing Pavlicka v. Pavlicka, 84 N.J. Super. 357 (App. Div. 1964)).

However, we disagree that the facts do not establish a "misrepresentation or other misconduct of an adverse party." R. 4:50-1(c). By its clear language, only defendants had the right to exercise the option to extend, which did not occur here. A default occurred on July 22, 2004, and foreclosure began immediately thereafter, making the option no longer available to either party. Accordingly, plaintiff was not entitled to $178,957 for extension or administrative fees.

The April 23, 2009 order denying the motion to vacate the final judgment of foreclosure is reversed, the sheriff's sale is set aside, and the matter is remanded for entry of an amended judgment consistent with this opinion.

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