On appeal before the Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. F-20201-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Parrillo and Skillman.
Defendants, Lamiaa Gouda and Mohammed Shaikh, husband and wife, appeal from the Chancery Division's entry of summary judgment and then final judgment in favor of plaintiff, HSBC Bank USA (HSBC), the foreclosing mortgagee. We affirm.
Defendants purchased a one-family home located at 83 Logan Avenue, Jersey City, in 2003 for $165,000. Purchased as an investment, defendants renovated and converted the property into a two-family home.
In June 2005, defendants refinanced the property through a mortgage broker, Empire Equity Group, Inc. (Empire). As part of that refinancing, Mortgage Lenders Network USA, Inc. issued defendants an adjustable rate loan of $293,250 with an initial interest rate of 6.75%.
In January 2006, defendants again contacted Empire to borrow an additional $40,000 by way of a second mortgage or home equity line of credit. The property was then appraised at $400,000. Empire supposedly persuaded defendants to refinance the entire loan instead and, on February 6, 2006, offered defendants a thirty-year conventional loan for $333,200 with an 8% interest rate through New Century Mortgage Company (New Century). Two days before the scheduled loan closing, however, Empire informed defendants that it could no longer provide a loan on such terms, but instead offered a forty-year adjustable rate loan of $352,800 with an initial interest rate of 9.9%. According to defendants, Empire represented that they could refinance within three months with a thirty-year conventional loan at an interest rate of 8% or less.
Defendants agreed to the new terms and, on March 3, 2006, Lamiaa Gouda (defendant) executed and delivered to New Century a note in the sum of $352,800, payable over forty years with interest accruing at an adjustable rate. To secure the note, defendant provided New Century with a mortgage against the Logan Avenue property. Three days later, New Century assigned its interest in the note and mortgage to HSBC, who remains the holder and owner of the same. The thirty-year conventional loan at 8% or less allegedly promised to defendants never materialized.
Defendants defaulted on the note on February 1, 2007 and failed to make payments thereafter. HSBC elected to call the entire principal balance due. Consequently, on August 10, 2007, HSBC filed a complaint in the Chancery Division, seeking to foreclose on the Logan Avenue property. Defendants answered, contesting the foreclosure action and asserting statutory claims under the Truth in Lending Act and the New Jersey Consumer Fraud Act, as well as common law fraud, deceit, inducement, and misrepresentation. Specifically, defendants alleged that the actual terms of the loan were not disclosed in the executed documents, as they were to be given a loan at 8%, not 9.9%. Defendants also claimed they never received executed copies of the documents relating to the note and mortgage except for two signed HUD-1 forms.
HSBC moved for summary judgment striking defendants' answer. Defendants opposed the relief, arguing that Empire defrauded them into accepting the March 2006 mortgage by changing the terms of the mortgage two days before the closing and misrepresenting that defendants would be able to refinance within three months of the closing. Following argument, the court granted HSBC's motion for summary judgment, striking defendants' answer, and entered default. The court referred the matter to the Foreclosure Unit for further proceedings and entry of final judgment. Following submission of HSBC's proofs, the court entered final judgment in favor of HSBC, entitling plaintiff to the sum of $447,215.14, together with interest and $4,622.15 in attorney's fees. The court also issued a Writ of Execution, directing the Sheriff of Hudson County to sell the Logan Avenue property to satisfy the mortgage debt. The Sheriff's sale was stayed pending appeal.
On appeal, defendants present a two-fold argument that (1) the note is non-negotiable because it imposes an obligation on defendants, in addition to payment, to notify the lender if pre-payment is made, in violation of N.J.S.A. 12A:3-104(a); and (2) HSBC is not a holder in due course because it knew or should have known of defects and irregularities in the mortgage closing documents at the time of assignment, as the documents were in its possession. As to the latter, the specific claim is that HSBC knew or should have known that the mortgage broker misrepresented the terms of the loan, understated the interest rate just prior to closing, and misled defendants into signing closing statements that did not accurately reflect the terms of the closing. We find no merit in either argument.
A note is a negotiable instrument if it contains "an unconditional promise or order to pay a ...