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Aurora Loan Services, LLC v. Edward Einhorn


June 9, 2011


On appeal from the Superior Court of New Jersey, Chancery Division, Ocean County, Docket No. F-30372-08.

Per curiam.


Submitted April 11, 2011

Before Judges Sabatino and Ostrer.

This is an appeal from a final judgment of foreclosure. On appeal, defendants, who are husband and wife and appear pro se, do not contest that the mortgage is valid and they have defaulted. They argue that plaintiff failed to provide them a notice required by the Fair Foreclosure Act, N.J.S.A. 2A:50-53 to -68, and the trial court erred when it declined to vacate final judgment. We disagree and affirm substantially for the reasons provided by the trial court.


On September 8, 2004, Edward Einhorn and Sarah G. Laks, husband and wife (defendants), executed a mortgage on 1465 Cedar Row in Lakewood in favor of Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for Lehman Brothers Bank, FSB (Lehman FSB), in connection with a $420,000 loan they received from Lehman FSB.*fn1 The loan was not a purchase money mortgage. Defendants had been title owners since February 13, 2001.

On May 19, 2005, defendants allegedly executed a second mortgage in favor of co-defendant NCC Holdings, LLC, to secure an additional $250,000. A little over a year later, they allegedly executed a third mortgage, in favor of co-defendant Chase Bank, USA, NA, to secure an additional $140,000.*fn2

MERS assigned the mortgage to plaintiff Aurora Loan Services (Aurora) on July 30, 2008. On August 8, 2008, Aurora filed a foreclosure complaint, alleging that the mortgagors had failed to pay installments due on the loan since April 2008. Defendants were duly served August 13, 2008. Service on the co-defendants was completed September 11, 2008. Aurora had served a notice of intention to foreclose on defendants by certified letter in late May 2008. After all defendants failed to answer, default was entered November 5, 2008.

Aurora then served, by certified and regular mail, a motion for entry of final judgment on April 13, 2009. The court filed the motion May 12, 2009. Although the motion was uncontested, action was delayed apparently due to a backlog in the Office of Foreclosure.

In the meantime, defendants filed an answer September 2, 2009, without moving to vacate the default. Consistent with Rule 1:5-6(c)(2), the clerk did not return the answer. Rather, deeming the answer to contest the foreclosure, the clerk forwarded the answer and the case to the trial court in Ocean County by letter dated December 17, 2009. However, over two weeks earlier, on December 1, 2009, the trial court in Mercer County, upon the recommendation of the Office of Foreclosure, had entered the requested final judgment. A writ of execution was signed and plaintiff sought a Sheriff's sale, which was scheduled for March 16, 2010.

In their answer, defendants did not contest that the mortgage was executed or that they defaulted. However, in their affirmative defenses, they challenged plaintiff's standing and compliance with the Fair Foreclosure Act.

After the file was forwarded to the trial court in Ocean County, the court entered a case management order requiring plaintiff to file a motion for summary judgment. The court did not formally enter an order vacating default.*fn3 Consistent with its case management order, plaintiff asked the Sheriff to cancel the foreclosure sale.

Plaintiff filed its motion for summary judgment in compliance with the court's case management order. Defendants opposed the motion and cross-moved for dismissal. The court granted plaintiff's motion, and denied defendants' cross-motion on April 16, 2010 for reasons that the court stated orally, but which have not been provided as part of the record on appeal. The court ordered plaintiff to cancel and re-advertise the Sheriff's sale, apparently to give defendants more time to resolve the case.

On June 3, 2010, the court received defendants' motion dated May 13, 2010 "to vacate the final judgment and discharge the writ of execution." Defendants argued that plaintiff had failed to provide a timely notice to cure pursuant to the Fair Foreclosure Act.

The court heard argument on the motion June 25, 2010. In the course of argument, defendant Laks agreed that the mortgaged property was not her home. This was consistent with other documents in the record that indicated that defendants resided elsewhere. For example, defendant Laks granted a general power of attorney to defendant Einhorn in May 2005 that stated that both defendants maintained an address at 1441 Cedar Row in Lakewood. Defendants' answer and opposition to the motion for summary judgment used the 1441 Cedar Row address.

The court denied the motion. The court held that defendants' motion was untimely, as it sought reconsideration more than twenty days after the court entered the order granting summary judgment. R. 4:49-2. The court also reasoned that there was no compelling reason to vacate the judgment; although the court did not formally vacate default, it reached a decision on the merits when it decided the motion for summary judgment.

Defendants filed their notice of appeal July 23, 2010.


Defendants present their argument under two point headings that state simply: "Point 1 - Default Issue" and "Point 2 -Notice to Cure Issue."*fn4 Defendants essentially argue that although the court did not formally vacate entry of default, the default was nonetheless vacated by dint of the acceptance of the answer by the Office of Foreclosure. Inasmuch as the their answer was filed after plaintiff served its initial notice of entry of judgment under the Fair Foreclosure Act (Act), defendants argue that plaintiff was required to serve a new notice. As plaintiff failed to do so, they conclude that judgment should have been vacated and a new application for final judgment must have been filed. Plaintiff responds that its notices complied with the Act and, more importantly, the Act does not apply to defendants as non-residents of the mortgaged property.

After carefully reviewing the record in light of the parties' written arguments, we conclude that defendants' arguments lack "sufficient merit to warrant discussion in a written opinion." R. 2:11-3(e)(1)(E). We affirm substantially for the reasons expressed by Judge Buczynski in his oral decision issued on June 25, 2010. We add the following comments to express our agreement with plaintiff's argument that the Act did not apply to defendants as non-resident owners.

The Fair Foreclosure Act grants procedural and substantive rights to certain residential mortgage debtors. The Act requires mortgagees to provide a prescribed notice to a debtor before filing a foreclosure action and another detailed notice before seeking entry of judgment. The Act grants a covered debtor the right to cure his or her default.

We conclude that the Act did not apply to defendants because they ceased residing in the mortgaged property before the events of default that prompted the foreclosure action. Key to our analysis is the statutory definition of "residential mortgage." We also rely on the overarching purpose of the Act to assist homeowners, as opposed to investors.

The Act's notice and right-to-cure provisions apply to a "residential mortgage." See N.J.S.A. 2A:50-54 to -57. As we construe the statutory language, a mortgage must satisfy two requirements in order to implicate the Act's protection. First, it must secure a residential property that is occupied, or is to be occupied at the time the Act is applied. N.J.S.A. 2A:50-55. Second, when the mortgage loan originated, the secured property must have consisted of four or fewer units, and one of those units must have been, or planned to have been, occupied by the debtor or a member of his or her immediate family. Ibid.

The Act defines "residential mortgage" to require current or future occupancy by the debtor:

"Residential mortgage" means a mortgage, security interest or the like, in which the security is a residential property such as a house, real property or condominium which is occupied, or is to be occupied, by the debtor, who is a natural person, or a member of the debtor's immediate family, as that person's residence. [N.J.S.A. 2A:50-55 (emphasis added).]

The Act then applies the defined term "residential mortgage" in requiring occupancy, or a plan to occupy, at the time of origination.

This act shall apply to all residential mortgages wherever made, which have as their security such a residence in the State of New Jersey, provided that the real property which is the subject of the mortgage shall not have more than four dwelling units, one of which shall be, or is planned to be, occupied by the debtor or a member of the debtor's immediate family as the debtor's or member's residence at the time the loan is originated. [Ibid. (emphasis added).]

In other words, if the debtor or his or her family does not occupy, or plan to occupy the property when the loan originated, the Act does not apply, even if the debtor or a family member later takes up residence. On the other hand, even if the debtor or the debtor's family occupied or planned to occupy the property when the loan originated, the Act may cease to apply if the debtor and his family vacate the property and convert it to a rental or investment property. That is because the mortgage would cease to be a "residential mortgage" as defined once the property is no longer "occupied, or . . . to be occupied" by the debtor or the debtor's family. Ibid.*fn5

Our statutory construction is consistent with the overarching goal of the Act to protect homeowners and prevent the loss of their shelter. N.J.S.A. 2A:50-54. To the extent there is ambiguity, the court should interpret the statute to vindicate its overarching purpose. Couri v. Gardner, 173 N.J. 328, 339 (2002). The court must "harmonize the individual sections and read the statute in the way that is most consistent with the overall legislative intent." Fiore v. Consol. Freightways, 140 N.J. 452, 466 (1995).

The drafters intended the Act to "provide additional protection for homeowners at risk of foreclosure on their homes because of a default in mortgage payments, and advances the public policies of the State by giving debtors every opportunity to pay their home mortgages, and thus keep their homes." Assembly Fin. Institutions Comm., Statement to Assembly No. 1064, at 1 (N.J. Sept. 29, 1994). The Act's remedial purpose is not implicated if the property is held for investment purposes.

Moreover, if the drafters intended the debtor's occupancy or plan to occupy at origination to be a sufficient basis for implicating the Act, then there would have been no need to define "residential mortgage" as security on property "which is occupied, or is to be occupied" when the Act is applied. A statutory interpretation that would render a provision superfluous should be avoided. See State v. Reynolds, 124 N.J. 559, 564 (1991). Giving both sentences meaning, occupancy or a plan to occupy at origination is a necessary, but not a sufficient basis to apply the Act.

Also, the drafters used a proviso to introduce the requirement of occupancy or planned occupancy at origination. In so doing, the drafters reflected the intent to limit coverage of the Act, as opposed to creating an independent basis for establishing coverage. Generally, a proviso limits the impact or effect of preceding language, as opposed to establishing a new or independent subject. N.J. State Bd. of Optometrists v. S. S. Kresge Co., 113 N.J.L. 287, 295 (Sup. Ct. 1934) (stating that function of a proviso "generally, is either to except something from the enacting clause, or to qualify or restrain its generality, or to exclude some possible ground of misinterpretation of it, as extending to cases not intended by the legislature to be brought within its purview"), modified on other grounds and aff'd, 115 N.J.L. 495 (E. & A. 1935). Thus, the statutory language that the Act covers a residential mortgage "provided that" the debtor occupy or plan to occupy the property at origination, should appropriately be read to mean that the Act only covers residential mortgages as defined, and then only if the debtor occupied or planned to occupy the property at origination.

Our view is not at odds with Bank v. Kim, 361 N.J. Super. 331, 335 (App. Div. 2003), where the defendants disputed the plaintiff's assertion that the mortgaged property was "rental property owned by the debtor." The plaintiff argued that the Act did not apply because the property was not owner-occupied and because it was "security for a commercial loan made to the defendants' business." Ibid. We held that the business purpose of the loan was inconsequential to whether the Act applied. Id. at 343. As to the issue of the defendants' actual residence, we remanded, stating that the Act "is applicable to defendants' property, if it was their residence when this secured loan originated." Id. at 343. However, the defendants also asserted that they occupied the property when the foreclosure complaint was filed. Ibid. Thus, the case did not present the issue we resolve here: whether the Act applies to a property that the debtor occupied when the loan originated, but vacated before the foreclosure complaint was filed, without proving intent to return to the property.

In sum, we reject defendants argument that they were denied appropriate notice under the Fair Foreclosure Act. In addition to the reasons expressed by the trial court, we conclude that the Act did not apply.


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