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Wells Fargo Bank, N.A. v. Ahmed


April 1, 2010


On appeal from the Superior Court of New Jersey, Chancery Division, Somerset County, Docket No. F-9635-08.

Per curiam.


Submitted March 17, 2010

Before Judges Graves and J. N. Harris.

Plaintiff Wells Fargo Bank, N.A., trustee for Carrington Mortgage Loan, Trust Series 2006-NC5 Asset-Backed Pass Through Certificates (Wells Fargo), successfully persuaded the Chancery Division to undo a Sheriff's sale because its bidding agent made a colossal blunder by following the written instructions of its attorney. Instead of bidding up to an authorized maximum of $629,800 to protect its principal's investment in a foreclosed mortgage, Wells Fargo's agent mistakenly thought it was limited to a bid of only $63,000, to which it stubbornly upheld throughout the Sheriff's sale. Appellant George Chukrallah also attended the Sheriff's sale, bid against several other interested buyers, and acquired the foreclosed property for just $382,000. A mere three days later, when Wells Fargo's attorney finally realized what had transpired at the Sheriff's sale, it immediately initiated efforts to obtain equitable relief in the Chancery Division. Following the upending of the Sheriff's sale, Chukrallah appeals. Because we cannot detect an abuse of discretion in the deployment of her equitable arsenal, we affirm the action of Judge Harriet E. Derman.

Wells Fargo initiated this action on March 10, 2008, seeking foreclosure relief because of a default in a note for $689,400, secured by real property located in Franklin Township. Final judgment for $746,187.03 was entered in Wells Fargo's favor on January 5, 2009, and a writ of execution was issued to facilitate the sale of the real property by the Somerset County Sheriff. The Sheriff's sale was duly scheduled for March 10, 2009 and all appropriate notices of the sale were published.

In anticipation of the Sheriff's sale, a representative of Wells Fargo emailed instructions to its attorney authorizing "a specified bid in the amount of $629,800."*fn1 For reasons described by Wells Fargo's attorney as "mistake, inadvertence, and/or excusable neglect," it sent written instructions to an authorized bidding agent that "contained a scrivener's error" indicating a maximum bid of only $63,000. At oral argument, Wells Fargo's attorney repeatedly referred to the slip-up as simply a "key stroke error."*fn2

Chukrallah attended the March 10, 2009 Sheriff's sale ready to bid; he was in possession of a cashier's check for $81,000, prepared to pay a deposit for the real property should he succeed in being the highest bidder. There, he observed Wells Fargo's agent, and listened as the agent informed the attendees that his maximum bid would be $63,000. Chukrallah claims that the agent was questioned by a number of other bidders whether the $63,000 amount was correct. Assured that this figure was correct, the bidding process commenced with an opening amount of $100. Over one hundred bids later, Chukrallah was declared the successful bidder at $382,000. He paid the Sheriff's representative the required deposit of $81,000 with his cashier's check.*fn3 On March 20, 2009, Chukrallah delivered the balance of $301,000 to the Sheriff, which he claimed was obtained partly from refinancing his existing real property and from borrowing the remaining $150,000 from his brother. Chukrallah's exact costs of these borrowings, if any, were not calculated and do not appear in the record.

Meanwhile, Wells Fargo's attorney had determined that something clearly went wrong during the bidding process. On March 13, 2009, the attorney sent Chukrallah a letter outlining the parade of errors that guided the agent's misbegotten bid. The letter requested that Chukrallah "voluntarily vacate the sale immediately" and enclosed a proposed consent order to that effect, which was to be presented to the Chancery Division. On March 18, 2009, one day after the deadline for a response, Wells Fargo filed its motion to vacate the Sheriff's sale.

Judge Derman heard oral argument on April 17, 2009. The court was presented with a certification containing extensive exhibits from Wells Fargo's attorney that explained its bidding gaffe. Except for the characterization of those events as being the product of excusable neglect, the circumstances as explained by the attorney were largely undisputed.

Chukrallah submitted his own certification with supporting exhibits attached. It mirrored much of the state of affairs presented in the moving party's certification, but additionally explained Chukrallah's personal circumstances. Anecdotal information was provided concerning: (1) the $585,700 assessed valuation of the property as determined by the Franklin Township Tax Assessor as of October 1, 2008; (2) the Garden State Multiple Listing Service report, which indicated a listing price for the real property as of January 2009 of $575,000; and (3) the estimated $426,500 that Chukrallah expected to pay overall to acquire the real property, repair its roof and plumbing, and to pay off all liens.

Judge Derman issued an oral decision immediately following oral argument. The judge reflected upon the then-current economic realities encountered by lenders, borrowers, and society in general;*fn4 she canvassed the applicable law; and ultimately applied her understanding of those legal principles to the facts of the case. She concluded that Chukrallah had not been substantially prejudiced by plaintiff's misstep and was not entitled to the application of principles of equitable estoppel; that plaintiff's mistake was understandable "especially in times of overwhelming pressure on resources, such has been created on [p]laintiff, its agents, and the industry peers by this foreclosure crisis"; and that the "difference between the bidding in question [and the likely value of the real property] is approximately, at least [thirty] to [forty] percent, a significant difference." Accordingly, on the same day, she entered a final order vacating the Sheriff's sale, which further provided that the "[t]hird party purchaser may submit a certification of services and order under the [five] day rule. Plaintiff shall reimburse purchaser for lost interest on his deposit and any other costs incurred subsequent to the sale, including attorney's fees." This appeal ensued.

There is no computer algorithm capable of accomplishing substantial equity, nor should there ever be one. Rather, judges are entrusted with the responsibility to make the delicate decisions necessary to resolve such disputes, and we expect that they will employ principled discretion with an accurate understanding of the law in the performance of those tasks. For that reason, the abuse of discretion standard applies to our review. United States v. Scurry, 193 N.J. 492, 502-03 (2008).

Chukrallah alleges three errors by the Chancery Division in vacating the Sheriff's sale: (1) that Wells Fargo's mistake did not warrant equitable relief; (2) that the price paid by Chukrallah was not grossly inadequate; and (3) that Wells Fargo's unilateral mistake did not warrant setting aside the sale. He mainly relies upon First Trust Nat'l Ass'n, Inc. v. Merola, 319 N.J. Super. 44 (App. Div. 1999). Judge Derman distinguished First Trust Nat'l Assoc. by pointing out that unlike the movant there, which had no procedures in place to avoid mistakes, Wells Fargo and its attorney had adopted measures for error-correction that plainly failed in this instance. We agree that the record supports this conclusion.

The Chancery Division has the power to vacate a Sheriff's sale and thereafter order a resale of the property in the implementation of its discretion, based upon considerations of equity and justice. First Trust Nat'l Assoc., supra, 319 N.J. Super. at 49. A judicial sale may be set aside based on fraud, accident, surprise, mistake, irregularities in the conduct of the sale, or for several other equitable considerations. Id. at 50. However, meagerness of price is not sufficient in and of itself to justify such equitable relief, unless the price is so lacking as to support an inference of fraud, or to shock the judicial conscience. Crane v. Bielski, 15 N.J. 342, 348 (1954); Karel v. Davis, 122 N.J. Eq. 526, 530 (E. & A. 1937). A foreclosure sale should be set aside only in rare instances, and then only when it is necessary for logical reasons to remedy a palpable injustice or injury. Karel, supra, 122 N.J. Eq. at 529; Jersey Sav. & Loan Ass'n. v. Shatto, 226 N.J. Super. 473, 476 (Ch. Div. 1987).

During periods of great economic trauma, such as the Great Depression of the 1930s, inadequacy of sales price is more likely to move a court to annul a foreclosure sale than during periods of financial prosperity. 79-83 Thirteenth Ave., Ltd. v. DeMarco, 44 N.J. 525, 534-35 (1965); 30A New Jersey Practice, Law of Mortgages, § 35.17 (Myron C. Weinstein) (2d ed. 2000). The economic situation at the time this foreclosure judgment was entered was in no way comparable to the worst of economic times, but it was a close second. The disparity in absolute dollars between the amount of the successful bid ($382,000) and the likely gross fair value of the property ($575,000)--in light of the amount of the foreclosure judgment ($746,187.03)--convinces us that Judge Derman's conclusion that plaintiff's loss would be "significant" is not so wide of the mark as to impel us to interfere.*fn5

In reviewing the totality of the circumstances, and even accounting for Chukrallah's status as an innocent bystander, we do not view the result in this case to be inequitable so as to warrant reversal. We note that plaintiff's attorney acted promptly after it detected its mistake. Furthermore, it is clear that there is not even a hint of fraud involved in this situation. Thus, relying upon the established principle when one of two innocent parties must suffer a financial loss because of a fraud perpetrated by an agent, courts have generally held that the party who enabled the fraud to be committed should shoulder the burden. Sears Mortgage Corp. v. Rose, 134 N.J. 326, 346 (1993); see Clients' Sec. Fund of the Bar of N.J. v. Sec. Title & Guar. Co., 134 N.J. 358, 369 (1993) (companion case).

Even under the lens of the related doctrine--"as between two innocent parties[,] equity will visit the loss upon the one by whose act the injury first could have been avoided," Global Am. Ins. Managers v. Perera Co., 137 N.J. Super. 377, 388 (Ch. Div. 1975), aff'd o.b., 144 N.J. Super. 24 (App. Div. 1976)--in this case, we conclude that a mechanistic result is inappropriate. Rather, the multi-faceted balancing of factors that Judge Derman assembled was the proper method for decision- making. We cannot say that it violated precedent, much less that it caused an infringement of Chukrallah's rights. Although he had an expectation of reaping the good fortune of Wells Fargo's bidding agent's misinformation through no fault of his own, Chukrallah necessarily was subject to the application of equitable principles. Because those principles lay within the broad spectrum of the law of mortgage foreclosures and were not whimsically or capriciously applied by the court, we have no occasion to disturb the Chancery Division's decision. Indeed, any perceived inequity to Chukrallah was substantially mitigated by the judge's proviso to make him financially whole.


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