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Countrywide Home Loans, Inc. v. Kim

December 31, 2009


On appeal from Superior Court of New Jersey, Chancery Division, Morris County, Docket No. F-8921-06.

Per curiam.


Argued December 2, 2009

Before Judges Graves and Newman.

Defendant Bank of America appeals from an order denying its motion to partially vacate a judgment of foreclosure and an order granting reconsideration but nonetheless denying relief from the foreclosure judgment. The judgment erroneously satisfied the junior obligation of Commerce Bank North (Commerce) ahead of Bank of America's senior lienholder position. The motion judge acknowledged that the judgment was flawed but denied relief because the motion was untimely under Rule 4:50-2 and there were no exceptional circumstances to warrant relief. We affirm.

The factual background may be summarized as follows. Hwa Gon Kim and his wife, Bom Chun Kim, ("the Kims") executed several mortgages on a property located on Circle Drive in Mount Tabor, New Jersey. The property was subject to a first mortgage for $321,000 by Countrywide Home Loans (Countrywide); a second mortgage for $200,000 by Bank of America's predecessor, Fleet National Bank; a third mortgage for $191,600 by Washington Mutual Bank, F.A. (Wamu); a fourth mortgage for $200,000 by Commerce; and a fifth mortgage for $180,000 by PNC Bank Consumer Loan Center (PNC).

On May 22, 2006, Countrywide filed a foreclosure complaint (the first action) against the Kims, Bank of America, Wamu, Commerce, PNC, and unknown tenants and/or occupants of the subject property.

On June 7, 2006, Commerce filed an answer as a subsequent encumbrancer and a certification alleging it was due a total of $200,769.16. Commerce did not indicate its order of priority in relation to the other mortgagees on the property. Default was entered against the remaining Countrywide defendants on July 21, 2006.

On July 25, 2006, Bank of America filed a separate foreclosure complaint (the second action) against the Kims, the occupants, Wamu, and Commerce, and it added a party not named in the first action, JP Morgan Chase (Chase).

On July 28, 2006, Bank of America contacted Countrywide because it was out of time to file an answer in the first action, and it requested that Countrywide provide Bank of America with a copy of its application for final judgment and its notice of sale. In the meantime, Bank of America served Commerce with the second action's complaint on August 5, 2006.

On November 17, 2006, in the first action, the court entered a final judgment of foreclosure, and issued a writ of execution. The court ordered that the mortgaged premises be sold to raise and satisfy the several sums of money due, in the first place [to Countrywide] the sum of $213,085.23 together with lawful interest . . . .

. . . . [and] that [Commerce] is entitled to have the sum of $200,769.16 . . . in the second place.

The court directed the Sheriff to deliver any surplus funds from the sale to the court.

All of the Bank of America defendants defaulted, and on March 1, 2007, the trial court entered a final judgment of foreclosure in the second action. According to that judgment, Bank of America was entitled to the sum of $211,167.82 plus interest and fees, to be paid from the sale of "so much of the said mortgaged premises" as necessary to satisfy the specified amount.

On March 22, 2007, the Morris County Sheriff conducted a sale pursuant to the Countrywide judgment, and Bank of America purchased the property for $371,000. The Sheriff's deed, dated April 4, 2007, included the court's initial writ of execution reflecting that Commerce was entitled to be paid in the second place. The Sheriff paid Countrywide and Commerce from the proceeds of the sale. According to a Sheriff's Report of April 2, 2007, a surplus of $125,640.83 remained after Countrywide was paid.

In the meantime, at Bank of America's request, the court vacated the final judgment entered in the second action in an order dated May 7, 2007, because the matter had been amicably settled between the parties.

On November 29, 2007, Bank of America filed a motion for surplus funds with the clerk of the trust fund unit in the first action, with notice to Countrywide and the remaining Countrywide defendants. On December 17, 2007, the Sheriff's Office advised Bank of America that it had already "[paid] the balance to the second mortgage" and that no surplus funds remained. Because no surplus funds remained, the motion court apparently directed Bank of America to withdraw its application.

Approximately seven months later, on July 29, 2008, Bank of America filed a motion to partially vacate the final judgment in the first action. Bank of America requested that the court 1) [p]artially [v]acate the [f]inal [j]udgment, amend the [w]rit and [v]acate the [d]efault as to [Bank of America] and 2) [enter] an [o]rder to require the funds turned over by the Sheriff to Commerce Bank to be returned to the Sheriff, who will be directed to deposit those funds with the Surplus Funds Unit of the [c]lerk of the [c]court.

Bank of America argued that the foreclosure judgment violated the requirements of Rule 4:64-1(e)(3)*fn1 , which prohibits payment to a subsequent encumbrancer until all prior encumbrances are paid, and it requested relief. On August 18, 2008, Judge Langlois denied Bank of America's motion as untimely.

On September 8, 2008, Bank of America filed a motion for reconsideration. Bank of America asserted that under the unique circumstances of this case, the one-year limitation period for filing a motion to vacate should be tolled from December 17, 2007, which was purportedly the first time Bank of America learned from the Sheriff's Office that Commerce had been paid the surplus funds. Bank of America contended that it had not acted sooner because the April 2007 Sheriff's Report indicated a post-sale surplus and Bank of America had planned on seeking those funds in a motion for surplus funds. According to Bank of America, the erroneous provision in the judgment of foreclosure, Commerce's mistaken acceptance of the surplus funds, and the Sheriff's erroneous report constituted exceptional circumstances warranting relief.

Judge Langlois granted reconsideration but denied any relief, referring to the reasons previously mentioned in denying the initial motion. These included: the failure to timely move to vacate the judgment of foreclosure based on mistake within the one-year time limitation of Rule 4:50-2 and the failure to establish any grounds for relief under Rule 4:50-1. Additionally, the court pointed out the following:

[m]ovant has failed to establish any grounds to set aside orders entered over 2 years ago. Movant never challenged (or appealed) final judgment or writ of execution - and actually purchased the property at sheriff's sale. No reasons are given for failure to seek surplus funds in timely manner. No prejudice has been shown to movant which failed (on its own) to otherwise contest or appear in foreclosure action filed in 2006.

Rule 4:50-1 has not been met in terms of proofs under any subsection.

On appeal, Bank of America raises the following points for our consideration:


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