On appeal from Superior Court of New Jersey, Chancery Division, Union County, Docket No. F-18394-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Wefing, Baxter and Koblitz.
The opinion of the court was delivered by KOBLITZ, J.S.C. (temporarily assigned).
In this mortgage foreclosure action, defendant Jacqueline Bethea, a
victim of a buy-lease-back "mortgage rescue scam," appeals the order
of final judgment in favor of plaintiff Deutsche Bank National Trust
Co. as trustee for Long Beach Mortgage Loan Trust, (Deutsche Bank), an
assignee of the note and mortgage from the original mortgagee's
successor in interest. Bethea also appeals the trial court's order
entering summary judgment in favor of Deutsche Bank and transferring
to the Law Division her third-party complaint against plaintiff and
other parties allegedly involved in the rescue scam.*fn1
Defendant argues that Deutsche Bank did not have standing to
file the foreclosure complaint and, if it did have standing, it was
not a holder in due course of the mortgage. Without evidence that
Deutsche Bank possessed the note at the time of filing, and knowing
that the complaint was filed prior to the assignment of the mortgage,
the trial court nevertheless found that Deutsche Bank had standing.
The court found that plaintiff cured the defect of filing the
complaint a day before receiving the
assignment by filing an amended complaint. The trial court also found
that Deutsche Bank was a holder in due course of the mortgage and thus
was not subject to any defenses asserted by Bethea because nothing in
the transaction would have alerted the original lender or Deutsche
Bank to any fraud in the underlying transaction.
After reviewing the record in light of the contentions advanced on appeal, we reverse the grant of summary judgment and final judgment and vacate the sheriff's sale, holding that Deutsche Bank did not prove it had standing at the time it filed the original complaint. The assignment was not perfected until after the filing of the complaint, and plaintiff presented no evidence of having possessed the underlying note prior to filing the complaint. If plaintiff did not have the note when it filed the original complaint, it lacked standing to do so, and it could not obtain standing by filing an amended complaint. Given that Deutsche Bank has not demonstrated standing, we cannot decide at this time whether it was a holder in due course of the mortgage.
Bethea's mother conveyed an interest in her two-family house located in Plainfield, New Jersey (Property) to Bethea on December 14, 2002. Bethea and her mother obtained a mortgage on the Property from Home American Credit Inc. d/b/a Upland Mortgage in the amount of $150,000.*fn2 Both the deed and the mortgage were recorded on January 10, 2003. Bethea's mother died later in 2003, and Bethea, who suffers from long-standing medical conditions, failed to keep up the mortgage payments. Bethea lives in one section of the two-family house and her son and grandson live in the other.*fn3
Bethea met Steve French, president and CEO of Elite Financial Services (Elite), when seeking options to prevent foreclosure of the Property. She certified that French promised her that he could save her home and convinced her to dismiss her then-pending bankruptcy petition. Bethea certified that French proposed a buyout of the Property, which would allow her to save her home, pay off her debts, improve her credit score and allow her to remain in her home.
On February 17, 2006, French facilitated Bethea's sale of the Property to a straw-person, Constance Lawrence Mitchell, for $355,000. Mitchell obtained a mortgage in the amount of $319,500 from Long Beach Mortgage Company (Long Beach) to purchase the Property. Bethea also gave Mitchell a $35,500 mortgage on the Property.
French drove Bethea to the closing at an attorney's office. Bethea was not represented by her own lawyer at the closing. She acknowledges that she signed several papers at the closing, but claims she did not understand their significance. Bethea entered into a "Consulting Agreement" (Agreement) with Elite and French at the closing. The Agreement provided for a sale of the Property to a third party (Mitchell), but allowed Bethea to rent the home for two years with the opportunity to repurchase it within that period. The Agreement provided that Bethea would create a reserve account by setting aside $37,187 from the closing proceeds. If Bethea failed to make a rental payment, the Agreement authorized counsel to pay the rent from the reserve account. The Agreement also provided that Bethea would pay Elite a $25,000 "consulting fee." Mitchell received $10,000 from the "consulting fee."
At the closing, Bethea also entered into a "Lease Agreement With Option to Purchase" (Option) with Mitchell, allowing Bethea to rent the house for twenty-four months for an unspecified amount. Under the Option, Bethea was to pay all the "utilities and costs related to the [P]roperty" with the option to purchase the Property within twenty-four months for $319,500, the amount of Mitchell's mortgage from Long Beach.
Based on the United States Department of Housing and Urban Development Uniform Settlement Statement (HUD-1), signed at the closing by Bethea, Mitchell and the attorney, Bethea was supposed to receive $62,187.02 of the $355,000 sales price of the Property. Bethea did not receive any money directly from the sale because the $62,187.02 reflected on the HUD-1 as "cash to seller" was used to pay the $25,000 consulting fee to Elite and the remaining $37,187.02 was placed in an escrow account pursuant to the Agreement.*fn4
In April 2006, French called Bethea and told her that she would have to pay $1680 per month towards her monthly rent of approximately $3000. She certified that he told her that "the balance would come out of the escrow account . . . ." Bethea stated that "she was shocked that [she] was expected to pay that much to stay in the house, . . . [because] at the time, [her] monthly income was approximately $1,195.00." Bethea certified that before she sold the house to Mitchell her monthly mortgage payment, which she was unable to keep current, was approximately $900. She certified that she made the $1680 rental payments until approximately May 2008, when French told her to stop making the payments and to start saving money to move. Bethea also certified that she paid the property taxes, utility bills and "municipal charges" after the sale of the Property to Mitchell.
On November 15, 2007, the closing attorney sent Bethea a letter informing her that the escrow account, which was used to make her rental payments, had been exhausted. He advised Bethea that it was "imperative that [she] sell this property as soon as possible" and enclosed a statement accounting for the use of the escrowed proceeds from the sale of the Property.
On May 13, 2008, Deutsche Bank filed a complaint for foreclosure against Mitchell, Bethea and General Motors Corp.*fn5
Bethea was named as a defendant as a result of the recorded $35,500 mortgage she gave Mitchell in connection ...