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Midcountry Bank v. George Smartt and Grace Smartt

May 24, 2011


On appeal from the Superior Court of New Jersey, Chancery Division, Sussex County, Docket No. F-5901-09.

Per curiam.


Submitted: May 11, 2011

Before Judges Axelrad and Lihotz.

In this foreclosure action on a mortgage, defendants George and Grace Smartt, the mortgagors, appeal from orders granting summary judgment to the mortgagee bank and denying their subsequent motions for relief. We affirm.

As defendants do not challenge the specifics of the mortgage or the fact they are in default of the obligation but, rather, its characterization as a temporary construction loan, we provide an abbreviated factual recitation. On December 13, 2004, defendants executed a note and construction note addendum to MidCountry Bank (Bank) in the amount of $337,000, with a maturity date of December 13, 2005, in connection with their construction of a house at 24 Fieldstone Trail, Byram Township, New Jersey. The construction note addendum identifies the note as for a "combined construction loan and permanent" loan. In bold all-caps language at the top of the form it notifies defendants: "THIS LOAN IS PAYABLE IN FULL AT MATURITY" and "THE LENDER IS UNDER NO OBLIGATION TO REFINANCE OR MODIFY THE LOAN AT THAT TIME." Accordingly, defendants will "BE REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS THAT [THEY] MAY OWN, OR [THEY] WILL HAVE TO FIND A LENDER, WHICH MAY BE THE LENDER [THEY] HAVE THIS LOAN WITH, WILLING TO LEND [THEM] THE MONEY." The parties also executed a construction loan agreement listing December 13, 2005 as the project completion date.

As security, defendants executed a mortgage that was duly recorded. Defendants also signed a construction loan rider "incorporated into and . . . deemed to amend and supplement" the mortgage, which provided that the "term of the loan shall be for the period of 372 months, of such time 12 months have been allocated for the construction period." It further provided that "all advances plus accrued interest and penalty (if any) shall become immediately due and payable" if construction of the new house was not completed by December 13, 2005.

The parties subsequently executed a loan modification agreement increasing the principal balance to $417,000 and numerous agreements extending the maturity date of the obligation. On January 30, 2007, George Smartt signed a disclosure form acknowledging the "construction loan is being approved for an amount that results in a risk level approval. I further acknowledge that there may not be an end loan investor willing to accept the loan as a construction loan modification at the completion of construction." Smartt "accept[ed] the fact that if no end loan investor is willing to accept the loan for modification I will be required to requalify and complete the refinance as a two close transaction." The last extension of mortgage agreement gave defendants until October 13, 2008 to pay the balance due.

Defendants defaulted by failing to complete construction of the house and failing to timely pay the balance due on the loan. On February 2, 2009, the Bank filed a foreclosure complaint against defendants. Default was entered against defendants on May 8, 2009, based on their failure to file an answer contesting the foreclosure. On July 6, 2009, the Bank sent defendants a notice of motion to enter final judgment.

Rather than moving to vacate the entry of default, R. 4:43-3, on June 17, 2009, defendants filed an answer containing a general denial and asserting as separate defenses barring of the Bank's action because: (1) it failed to send the requisite notice of intention to foreclose under the Fair Foreclosure Act; (2) its solicitor was not licensed by the New Jersey Department of Banking & Insurance; (3) it engaged in deceptive and misleading solicitation in connection with a consumer loan; (4) it charged defendants excessive fees under the New Jersey Home Ownership Security Act of 2002 (Home Ownership Act); (5) it had prior knowledge that defendants had no experience in building houses and thus assumed the risk of nonpayment of the loan; and (6) it is estopped because it failed to provide defendants the funds to complete construction. Defendants also asserted counterclaims alleging violations of the Home Ownership Act, New Jersey Licensed Lender Act (Licensed Lender Act), and the Consumer Fraud Act. The Bank filed responsive pleadings.

On or about November l6, 2009, the Bank filed a motion for summary judgment seeking an order striking defendants' answer on the ground it set forth no defense sufficient in law and transmitting the case to the Foreclosure Unit as uncontested. Defendants filed opposition and a cross-motion to dismiss the foreclosure complaint. Following oral argument on February 5, 2010, the court found the construction loan never became a permanent loan and thus was not subject to the statutory protections available to a residential mortgage debtor. Accordingly, in an order memorialized on that date, the court granted the Bank's motion, struck defendants' answer and referred the case to the Foreclosure Unit as uncontested, and denied defendants' cross-motion. By order of March 11, 2010, the court entered a final judgment of foreclosure in favor of the Bank in the amount of $440,426.32, with interest and costs.

On May 4, 2010, defendants filed a notice of motion "to vacate the final judgment, vacate the summary judgment order and dismiss Plaintiff's Foreclosure Complaint." The Bank filed opposition. By order of May 28, 2010, the court denied defendants' motions. On June 29, 2010, defendants appealed the orders of February 5 and May 28, 2010. By order of July 23, 2010, the trial court granted defendants' motion for a stay of the July 26, 2010 sheriff's sale and adjourned the sale to September 27, 2010, with the notation that all future requests for stay were to be made to us.*fn1

On appeal, defendants renew their arguments asserting violations of the Fair Foreclosure Act and Licensed Lender Act.

We first note that defendants' appeal of the February 5, 2010 order granting summary judgment in favor of the Bank is out of time. See R. 2:4-1 (requiring appeals from final judgment or order of a court within forty-five days of their entry). ...

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