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Financial Freedom Senior Funding Corporation v. Annette C. Fischer


March 31, 2011


On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-5900-08.

Per curiam.


Argued December 14, 2010

Before Judges Graves, Messano, and Waugh.

Defendant Annette C. Fischer appeals the April 1, 2010 order of the Law Division denying her motion to set aside a default judgment entered on February 20, 2009. We affirm.


We discern the following facts and procedural history from the record on appeal.

In December 2006, Fischer applied to plaintiff Financial Freedom Senior Funding, Corp. (Financial Freedom),*fn1 for a reverse mortgage to pay off debts encumbering her residence in Short Hills. Financial Freedom authorized a reverse mortgage loan in the principal amount of $796,250. Fischer anticipated receiving $217,586.27 of the loan proceeds directly, which she intended to use as a means of support. Defendant First American Title Insurance Company (First American) was to provide the title insurance, and defendant Heritage Abstract Company (Heritage) was to be the closing agent. Fischer retained Deborah Factor, an attorney, to represent her at the closing.

On April 18, 2007, Dennis Bivona, Vice President of Sales for Heritage, informed Fischer that Financial Freedom approved the reverse mortgage and that Heritage had received the closing documents. The loan was scheduled to close on April 19, 2007.

A title search on Fischer's property conducted immediately prior to the closing revealed several liens, including a federal tax lien in the amount of $111,571.81. According to Fischer, she had not been aware of the tax lien. Bivona informed Fischer and Factor on the date of the closing that the federal tax lien had to be included in the loan statement, with the lien amount deducted from the loan proceeds and escrowed.

Fischer did not want to close on the loan if she "was not going to immediately receive the amount of $217,586.27 in net proceeds from [the] loan." However, Fischer also wanted the proceeds disbursed promptly to prevent a sheriff's sale of her residence scheduled for April 24, 2007. Nevertheless, Fischer cancelled the closing.

According to Fischer, Bivona called her back on April 19 and informed her that the federal tax lien would not be included in the loan documents or escrowed. Fischer "decided to continue with the loan transaction that day," based on her understanding that she would receive $217,586.27 as soon as the loan was funded.

The closing took place later on April 19, 2007, with Fischer and Bivona signing a Housing and Urban Development (HUD) statement that did not mention the federal tax lien. According to Fischer, she was on medication that made her drowsy at the time of the closing. Consequently, she claims that she did not notice that the HUD closing documents were dated April 18, 2007, the day prior to the actual closing.

Fischer claims that Bivona called her on April 20, and informed her that she would be required to pay off or escrow the federal tax lien as part of the loan transaction. According to Fischer, when she responded that she wanted to cancel the loan, Bivona asked her to refrain from doing so. Fischer further asserts that Bivona called her later that day and told her that the federal tax lien would not be escrowed, so she would receive the full amount of $217,586.27.

Factor also spoke with Bivona on April 20, and confirmed the conversation with a written letter of the same date. In the letter, Factor noted that Bivona had decided not to require an escrow for the federal tax lien, that it was not included on the HUD statement, and that her client intended to proceed with the loan as described in that statement.

Factor's letter further stated that the "loan should fund on Monday, April 23, 2007," and that it was "imperative" that she receive a check to cover the impending April 24 sheriff's sale. Factor listed the liens that were to be paid off by the loan, and concluded by stating that "under no circumstances is [Fischer] willing to place any additional funds into the escrow account" for the federal tax lien.

Fischer emailed Bivona on April 20 to confirm that she would receive the loan funds on April 23. Bivona replied in an email sent within minutes of Fischer's initial email. According to Fischer, she did not cancel the loan because of Bivona's email assuring her that there would be no escrow for the federal tax lien.

On April 23, Bivona called Fischer and informed her that Heritage would be holding back $111,571.81 in loan funds to cover the federal tax lien. Fischer alleges that she responded that she would cancel the loan, at which point she contends that Bivona informed her that her right to rescind the loan expired at midnight on April 21.

Heritage faxed a letter to Factor on April 23, informing her that Heritage required funds to be held in escrow for the federal tax lien. Factor replied, stating that satisfaction of the federal tax lien was not a condition of the loan and that

Fischer would not agree to an additional $112,000 in escrow to satisfy the lien. Factor also noted that she and Fischer anticipated having the loan funds by the following day, April 24, in order to prevent the sheriff's sale of Fischer's home.

Fischer refused to execute new escrow agreements provided by Heritage on April 23 because they contained provisions indemnifying Heritage and First American. According to Fischer's certification, she was then informed that Financial Freedom had already funded the loan and was refusing to release the proceeds without the revised escrow agreements.

Fischer maintains that on April 24, "Financial Freedom, through its agent Heritage, was still refusing to release any funds." Fischer signed the revised escrow agreements on April 24, the date of the sheriff's sale. Fischer received $106,014.40, which was sufficient to satisfy the $39,790 lien involved in the sheriff's sale. The sale was adjourned that day and subsequently cancelled.

On May 15, 2007, Fischer's daughter, Randi Fischer, called Bivona on Fischer's behalf to request statements documenting the $106,014.40 she received from the loan.*fn2 They received the HUD statement, dated April 18, 2007, which had been altered to reflect that Fischer received $106,014.40, and to reflect the escrow for the federal tax lien.

According to Fischer, she and Randi spoke with Michael Harris, the owner of Heritage, on May 22. They demanded that the escrow be released to Fischer. Harris refused. According to Fischer, Harris told her that Financial Freedom had known about the federal tax lien and did not need to include the lien on the HUD statement.

On October 8, 2007, Financial Freedom sent Fischer a letter reopening the right of rescission on her loan and informing her that she was required to take action on the rescission by October 18. Fischer did not execute the rescission documents. According to Fischer, she had several health issues, including advanced coronary artery disease and frequent multiple strokes, as well as complications arising from cardiac valve and bypass surgery. Fischer maintains that she had been unable to read and respond to the letter offering her another opportunity to rescind the loan because she had recently undergone open-heart surgery and had suffered complications.

In December 2007, Fischer retained new counsel and filed an action against First American and Heritage, seeking the release of the tax-lien escrow, plus interest. She did not seek recission of the loan or any relief related to Bivona's alleged misrepresentations. In March 2008, the Law Division entered an order for distribution. The funds escrowed were subsequently released to Fischer.

On June 12, 2008, Financial Freedom sent Fischer a letter requesting that she "execute a proper notice of rescission form" because "the closing documents for [Fischer's] reverse mortgage were backdated by the closing agent, without Financial Freedom's knowledge." Fischer never executed the notice of rescission requested by Financial Freedom.

On July 22, 2008, Financial Freedom filed a complaint against Fischer, First American, and Heritage seeking a declaratory judgment that the period for rescission of Fischer's mortgage had expired. Fischer was served with the summons and complaint on August 5.

On September 4, Randi, acting on her mother's behalf, requested an extension of time to reply to the complaint. A stipulation of consent extending Fischer's time to answer by thirty days was filed on September 17.

On September 29, Fischer's attorney met with counsel for Financial Freedom and First American for the purpose of negotiating a settlement with Financial Freedom.*fn3 Although settlement discussions continued into October, no settlement was reached. Fischer then informed her attorney that she was financially unable to provide the additional retainer needed for him to file a responsive pleading. He discontinued his representation.

On November 6, Financial Freedom requested entry of default for failure to answer the complaint. On December 4, Randi wrote a letter to the civil presiding judge on Fischer's behalf requesting an adjournment. In the letter, Randi stated that she was writing on her mother's behalf because she was "pro se and has been medically unable to do so herself." Included were two letters from Fischer's treating physicians. A letter from Dr. Sarah Kaplan, M.D., indicated that Fischer had been in her care as of October 2, 2008 for cardiac issues, and that Fischer's weakened condition would make it "extremely difficult for her to safely participate in legal proceedings." A letter from Dr. William T. Richardson, M.D., Fischer's physician for several years, stated that she was not medically able to participate in legal proceedings.

On February 4, 2009, Financial Freedom filed a motion for entry of a default judgment. Randi sent letters on February 13 and 17, 2009, requesting an adjournment. The February 13 letter included a note from New York Presbyterian Hospital indicating Fischer was to undergo eye surgery on February 18, 2009. The request for adjournment was denied on February 20. On the same day, the judge granted the motion for entry of a default judgment. The time to appeal that order expired in April 2009.

Fischer retained new counsel in September 2009. She sought Financial Freedom's consent to vacate the default, but consent was refused. Fischer settled her disputes with Heritage and First American in October 2009.

Fischer filed a motion to vacate the default judgment and for leave to file a counterclaim on February 19, 2010. She relied on certifications from herself, Randi, and the attorney who had previously represented her in connection with efforts to settle Financial Freedom's complaint. They set forth the factual background outlined above.

Following oral argument on April 1, 2010, Judge Eugene J. Codey, Jr., denied the motion to vacate the default judgment. In denying the motion, Judge Codey noted that Fischer had been involved with other litigation between 2007 and 2008, including an action filed by Randi in which Fischer represented herself.

The judge concluded that "Fischer's claims of ill health and dire financial circumstances . . . to justify her failure to take timely action in this lawsuit [were] not in any way supported in the record and there [was] no sufficient evidence or grounds under Rule 4:50-1 to grant the requested extraordinary relief." The judge further stated "in summary, number one, there is no excusable neglect; number two, there is no meritorious defense; she has never put in writing that she wanted to rescind the loan." An order was entered the same day.

Fischer filed a motion for reconsideration on April 14, 2010.*fn4 The motion included two certifications from her treating physicians and a certification from her former attorney. The physicians' certifications stated that Fischer's medical condition was particularly serious from November 2008 through March 2009. One doctor's certification also referenced severe injuries Fischer sustained from a domestic violence incident, and included color photographs of the injuries, but did not reference the time period in which Fischer sustained those injuries.

On April 30, 2010, Judge Codey entered an order denying Fischer's motion for reconsideration. He noted that the motion was not in compliance with Rule 4:49-2, because it presented matter that "could have been produced for consideration at the original motion hearing." This appeal followed.


On appeal, Fischer contends that the motion judge abused his discretion in refusing to vacate the default judgment because she demonstrated several grounds warranting relief under Rule 4:50-1(a). We disagree.

Rule 4:50-1 provides:

On motion, with briefs, and upon such terms as are just, the court may relieve a party or the party's legal representative from a final judgment or order for the following reasons: (a) mistake, inadvertence, surprise, or excusable neglect; (b) newly discovered evidence which would probably alter the judgment or order and which by due diligence could not have been discovered in time to move for a new trial under R. 4:49; (c) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (d) the judgment or order is void; (e) the judgment or order has been satisfied, released or discharged, or a prior judgment or order upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment or order should have prospective application; or (f) any other reason justifying relief from the operation of the judgment or order.

"A motion under Rule 4:50-1 is addressed to the sound discretion of the trial court, which should be guided by equitable principles in determining whether relief should be granted or denied." Hous. Auth. of Morristown v. Little, 135 N.J. 274, 283 (1994). "[T]he opening of default judgments should be viewed with great liberality, and every reasonable ground for indulgence is tolerated to the end that a just result is reached." Marder v. Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div.), aff'd, 43 N.J. 508 (1964). Further, any doubts should be decided in favor of the party seeking to vacate the judgment. Mancini v. EDS ex rel. N.J. Auto. Full Ins. Underwriting Ass'n, 132 N.J. 330, 334 (1993).

Nonetheless, the decision to grant or deny an application to vacate a default judgment is accorded substantial deference and will not be disturbed absent a "clear abuse of discretion." Hous. Auth. of Morristown, supra, 135 N.J. at 283; Mancini, supra, 132 N.J. at 334; Pressler & Verniero, Current N.J. Court Rules, comment 1 on R. 4:50-1 (2011).

A party seeking relief from a default judgment pursuant to Rule 4:50-1(a) must demonstrate both excusable neglect, Jameson v. Great Atlantic and Pacific Tea Co., 363 N.J. Super. 419, 425-26 (App. Div. 2003), certif. denied, 179 N.J. 309 (2004), and a meritorious defense. Dynasty Bldg. Corp. v. Ackerman, 376 N.J. Super. 280, 285 (App. Div. 2005); see also Pressler & Verniero, Current N.J. Court Rules, comment 4.1 on R. 4:50-1 (2011); Hous. Auth. of Morristown, supra, 135 N.J. at 284.

Fischer maintains that she established excusable neglect based on her serious medical conditions and age, which rendered her unable to represent herself as a pro se defendant. The facts do not support her assertion.

Fischer was actually served with plaintiff's complaint on August 5, 2008. Financial Freedom consented to a thirty-day extension of Fischer's time to file a responsive pleading. Fischer then retained counsel and sought to settle the litigation. She met with her attorney and attended settlement discussions. When those settlement discussions were unsuccessful, she declined to pay the additional retainer necessary to defend the suit and discharged her attorney.

Although Randi sent the judge several letters from her mother's doctors concerning her medical condition, the letters did not establish that Fischer was medically unable to file an answer or interact with an attorney during the entire period between service of the complaint and entry of default. In addition, there is nothing in the record to support Fischer's assertion that she was unable to afford counsel.

The judge also found it significant that Fischer participated in other litigation from 2007 through 2009. He noted the various attorneys Fischer hired to represent her, as well as the occasions on which she filed pro se answers. We are satisfied that the record amply supports the judge's conclusion that Fischer failed to establish excusable neglect based on her poor health.

Fischer also contends that she was the victim of predatory lending practices by Financial Freedom, which she alleges is an "exceptional situation" warranting relief under Rule 4:50-1(f). According to Fischer, she was manipulated into executing the reverse mortgage by Financial Freedom's false representations regarding the expiration of her right of rescission and the inclusion of the federal tax lien in the loan statement.

"[R]elief under Rule 4:50-1(f) is available only when 'truly exceptional circumstances are present.'" Hous. Auth. of Morristown, supra, 135 N.J. at 286 (quoting Baumann v. Marinaro, 95 N.J. 380, 395 (1984)). A movant relying on Rule 4:50-1(f) must ordinarily show "that enforcement of the order or judgment would be unjust, oppressive, or inequitable." Piscitelli v. Classic Residence by Hyatt, 408 N.J. Super. 83, 102-03 (App. Div. 2009). However, when a party seeks to vacate a default judgment, Rule 4:50-1(f) "is applied more liberally." Nowosleska v. Steele, 400 N.J. Super. 297, 304 (App. Div. 2008).

In Nowosleska, we reversed the trial court's denial of the defendants' motion to vacate a default judgment, which had resulted in loss of their home following a series of loan transactions. Id. at 304-06. We concluded that permitting the default to stand "may result in a grave injustice" because "defendants may have been the victims of predatory lending practices," which we described as:

"a mismatch between the needs and capacity of the borrower . . . In essence, the loan does not fit the borrower, either because the borrower's underlying needs for the loan are not being met or the terms of the loan are so disadvantageous to that particular borrower that there is little likelihood that the borrower has the capability to repay the loan." [Id. at 304-305 (quoting Assocs. Home Equity Servs., Inc. v. Troup, 343 N.J. Super. 254, 267 (App. Div. 2001)).]

Predatory lending often involves circumstances in which the lender engages in fraudulent activity in order to induce borrowers to take on "bad loans," including "loans that are overpriced, loans where there is no net economic benefit to the borrower, loans where the borrower cannot afford the payment so the lender is relying on the borrower's equity for payment, and loans with other exploitative terms not understood by the borrower." Id. at 305 n.3 (citation omitted) (internal quotation marks omitted).

Those circumstances are not present in this case. Fischer was a willing borrower, eager to enter into the loan offered by Financial Freedom. She received a loan for $796,250 from Financial Freedom at a time when her home was worth approximately $1,625,000. She received sufficient funds following the closing to resolve the pending sheriff's sale and to eliminate other liens on her property.*fn5 She ultimately received the entire amount of the loan, albeit after she filed suit against First American and Heritage with respect to the tax-lien escrow. Compare Nowosleska, supra, 400 N.J. Super. at 305 (finding defendants may have been victims of predatory lending after losing a house valued at $405,000 in exchange for debt payments totaling only $145,000).

These facts were relied upon by Judge Codey in his April 1, 2010 oral decision:

This is not a case calling out for equity as attempted to be [portrayed] by [Fischer] of an elderly, uneducated, unsophisticated home owner who loses title to her modest dwelling that she saved her whole life to get and [lost] in a mortgage swindle.

This is, instead, the case of a clearly educated home owner who does not lose title to a dwelling in Short Hills, New Jersey; but, rather, voluntarily enters into a mortgage transaction that, number one, prevents a sheriff sale involving her home . . . .

Number two, she retained title to the real property with substantial equity in excess of the $796,250 mortgage because, as the papers reflect, the home was appraised at that 2007 time at $1,625,000.

Number three, she netted the sum of $333,886.68, which clearly negates her claim of a poor financial condition.

Number four, she had all of the outstanding liens on her home totaling in excess of $450,000 paid off at the closing.

Number five, she's never executed a written notice of rescission, and in this court's opinion, that's because she got exactly the financial benefits that she bargained for in this transaction. . . .

Number six, there was no fraud . . . .

The $111,571.81 was ultimately released to her in full . . .

We see no abuse of judicial discretion. While the mortgage transaction was flawed, Fischer essentially received the loan she sought. In addition, the bulk of her allegations of misleading conduct were made against Bivona, who was employed by Heritage rather than Financial Freedom.

Having reviewed the remaining issues raised on appeal, we find them to be without merit and not warranting extensive discussion in a written opinion. R. 2:11-3(e)(1)(E). We add only the following brief comments with respect to some of those issues.

The Truth in Lending Act (TILA), 15 U.S.C. § 1635, provides for a three-day rescission period during which the loan can be cancelled. Although Fischer was not given appropriate notice because of the back-dating of the closing documents, Financial Freedom "reopened" Fischer's right of rescission in a letter of October 8, 2007, which included a new notice of rescission with a notice date of October 15, 2007, and an October 18, 2007 deadline by which Fischer's right of rescission would expire. She did not avail herself of that opportunity. Financial Freedom again requested that Fischer sign a corrected notice of rescission form on June 12, 2008, and October 8, 2008. Again Fischer did not execute either of the notices provided or avail herself of the opportunity to rescind. Fischer's belated attempt to rescind on April 17, 2010, was untimely and ineffective. She has never proposed to return the loan proceeds, but rather seeks to cancel her secured obligation to repay the loan. See Summit Trust Co. v. Chichester, 233 N.J. Super. 417, 423 (App. Div. 1989).

With respect to Fischer's proposed affirmative claims, we are satisfied that they were barred by the entire controversy doctrine. They were based on essentially the same facts as her earlier suit against First American and Heritage. Rule 4:30A sets forth the entire controversy doctrine, which "requires the assertion of all claims arising from a single controversy in a single action at the risk of being precluded from asserting them in the future." In re Estate of Gabrellian, 372 N.J. Super. 432, 444 (App. Div. 2004), certif. denied, 182 N.J. 430 (2005). "It is 'the factual circumstances giving rise to the controversy itself, rather than the commonality of claims, issues or parties, that triggers the requirement of joinder to create a cohesive and complete litigation.'" Ibid. (quoting Mystic Isle Dev. Corp. v. Perskie & Nehmad, 142 N.J. 310, 322 (1995)).

With regard to the motion for reconsideration, Fischer did not demonstrate that Judge Codey overlooked relevant facts or legal principles. Capital Fin. Co. of Del. Valley, Inc. v. Asterbadi, 398 N.J. Super. 299, 310 (App. Div.), certif. denied, 195 N.J. 521 (2008). The submission of additional evidence that could have been supplied earlier is not permitted by Rule 4:49-2. Pressler & Verniero, Current N.J. Court Rules, comment 2 on R. 4:49-2 (2011). In any event, consideration of those documents would not have changed the result.

In summary, we conclude that Judge Codey did not abuse his discretion in denying Fischer's motion to set aside the default judgment or in denying her motion for reconsideration. His reasons were well supported by the record.


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