On certification to the Superior Court, Appellate Division, whose opinion is reported at
The opinion of the court was delivered by: Justice Albin
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Gonzalez v. Wilshire Credit Corp.
Argued January 18, 2011 -- Decided August 29, 2011
ALBIN, J., writing for a unanimous Court.
In this appeal, the Court addresses the applicability of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -195, to a post-foreclosure-judgment agreement to not pursue a sheriff's sale contingent on the payment of loan arrears and additional costs and fees.
Plaintiff, Blanca Gonzalez, and Monserate Diaz purchased a home as tenants in common. Subsequently, Diaz borrowed $72,000 from Cityscape Mortgage Corporation (Cityscape) and executed a note. Plaintiff did not sign the note. Plaintiff and Diaz secured that loan by mortgaging their home to Cityscape. Although plaintiff was not personally liable on the note, her ownership interest in the home was subject to foreclosure to pay Diaz's debt. Cityscape subsequently assigned the note and mortgage to defendant U.S. Bank National Association (U.S. Bank). After Diaz died, plaintiff continued to make the monthly loan payments. Over time, plaintiff fell behind on the payments and U.S. Bank obtained a foreclosure judgment. The trial court ordered that the home be sold to satisfy the judgment. In May 2004, before the sheriff's sale, plaintiff entered into a written agreement with defendant Wilshire Credit Corporation (Wilshire), U.S. Bank's servicing agent. A Legal Services attorney negotiated the agreement on plaintiff's behalf. Wilshire agreed to forbear pursuing the sheriff's sale contingent on plaintiff making a lump sum payment and then monthly payments that consisted of the original loan's monthly payment of $699.31, an amount to be applied to the arrears, and other fees through January 2006. The agreement included language indicating that it was an attempt to collect a debt and stated that the foreclosure action would be dismissed when plaintiff made the account current.
By September 2005, plaintiff had missed four payments. The trial court calculated that she was in arrears $6,461.89 as of October 2005. A scheduled sheriff's sale was cancelled when the parties entered into a second agreement. Plaintiff was contacted and dealt with directly; neither Wilshire nor U.S. Bank notified the Legal Services attorney. Although plaintiff did not speak or read English, the second agreement was entirely in English. The second agreement fixed arrearages, including foreclosure fees and costs, at $4,396.29 more than the amount calculated by the trial court. It also included unnecessary homeowner's insurance, known as force-placed insurance. Plaintiff agreed to make a lump sum payment and then monthly payments through October 2006. The agreement included language that it was an attempt to collect a debt and stated that the foreclosure action would be dismissed when the mortgage payments became current. Although plaintiff had not missed a single payment required by the second agreement, instead of dismissing the foreclosure action as promised, Wilshire sent a letter to plaintiff in October 2006 noting that the second agreement was about to expire and that a new agreement needed to be negotiated to avoid foreclosure. Plaintiff contacted the Legal Services attorney. When the attorney questioned Wilshire, it could not explain how it had come to the arrears amount set in the second agreement, or why plaintiff was not deemed current on the loan.
In July 2007, plaintiff filed a complaint alleging that defendants Wilshire and U.S. Bank engaged in deceptive and unconscionable practices in violation of the CFA. The trial court granted summary judgment in favor of defendants, finding that the CFA did not apply to post-judgment settlement agreements entered into to stave off a foreclosure sale. The Appellate Division reversed and reinstated plaintiff's CFA claim. Gonzalez v. Wilshire Credit Corp., 411 N.J. Super. 582 (App. Div. 2010). The Supreme Court granted defendants' petition for certification. 202 N.J. 347 (2010).
HELD: The post-foreclosure-judgment agreements in this case constitute a stand-alone extension of credit. In fashioning and collecting on such a loan, a lender or its servicing agent cannot use unconscionable practices in violation of the CFA.
1. The CFA provides a private cause of action to consumers victimized by fraudulent practices and is applied broadly to accomplish its remedial purpose. A consumer who can prove an unlawful practice, an ascertainable loss, and a causal relationship between the misconduct and the loss is entitled to CFA relief. An unlawful practice includes the use "by any person of any unconscionable commercial practice . . . in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person." "Advertisement" includes the attempt to "induce directly or indirectly any person to enter or not enter into any obligation . . . or to make any loan." "Merchandise" includes "anything offered, directly or indirectly to the public for sale." The broad language of these provisions encompasses the offering, sale, or provision of consumer credit. Collecting or enforcing a loan constitutes the "subsequent performance" of a loan, an activity falling within the coverage of the CFA. Further, an ascertainable loss includes a loss incurred through improper loan packing, such as forcing a borrower to purchase unnecessary insurance. (pp. 20-24)
2. The Court need not address whether Cityscape had a direct relationship with plaintiff. What is important is that
(1) the assignment of the note and mortgage to U.S. Bank and the appointment of Wilshire as the servicing agent merely substituted those entities for Cityscape in its relationship with plaintiff; and (2) U.S. Bank through Wilshire contracted directly with plaintiff in two separate post-foreclosure-judgment agreements. Those agreements establish privity between plaintiff and U.S. Bank and Wilshire. (pp. 24-26)
3. The Court need not decide whether the post-judgment agreements with plaintiff and Wilshire's collection activities can be denominated as the "subsequent performance" of the original loan to Diaz because the Court concludes that post-judgment agreements, standing alone, constitute the extension of credit, or a new loan, and Wilshire's collection activities may be characterized as "subsequent performance" in connection with that extension of credit. The post-judgment agreements between plaintiff and Wilshire were forbearance agreements that retained every characteristic of the initial loan -- and more. Once plaintiff satisfied the arrearages and made the loan current, the agreements called for the dismissal of the foreclosure action and presumably for the reinstatement of the loan. To consider Wilshire's collection activities concerning these post-foreclosure-judgment agreements as something other than "subsequent performance" in connection with a newly minted loan cannot be squared with either the form or the substance of the agreements. (pp. 26-30)
4. In the midst of an unprecedented foreclosure crisis, defendants would have the Court declare this seemingly unregulated area a free-for-all zone. The drafters of the CFA expected the Act to be flexible enough to combat newly packaged forms of fraud. Lending institutions and their servicing agents are not immune from the CFA; they cannot prey on those bowed down by a foreclosure judgment and desperate to keep their homes. Furthermore, the Court does not agree that the CFA is unavailable because plaintiff could seek relief in the chancery court, pursue common law claims, or because a number of federal and state statutes regulate the mortgage lending and servicing area. The CFA is in addition to any other relief, and its counsel-fees provision provides a financial incentive for members of the bar to litigate CFA cases, which benefits the poor and powerless. Also, the CFA's purpose is not only to make victims whole, but to punish and deter fraudulent practices with treble damages and costs. Moreover, the Court is confident that lenders and their servicing agents will continue to negotiate work-outs in a post-foreclosure-judgment setting. (pp. 30-36)
5. This case in no way suggests that settlement agreements in general are now subject to the CFA. The narrow issue before the Court is the applicability of the CFA to a post-foreclosure-judgment agreement involving a stand-alone extension of credit. In fashioning and collecting on such a loan, a lender or its servicing agent cannot use unconscionable practices in violation of the CFA. (pp. 36-37)
The judgment of the Appellate Division is AFFIRMED and the matter is REMANDED to the trial court for further proceedings consistent with the Court's opinion.
CHIEF JUSTICE RABNER and JUSTICES LONG, RIVERA-SOTO and HOENS join in JUSTICE ALBIN's opinion. JUSTICE LaVECCHIA did not participate.
JUSTICE ALBIN delivered the opinion of the Court.
Plaintiff Blanca Gonzalez pledged as collateral the home she jointly owned with Monserate Diaz to secure a loan he obtained from Cityscape Mortgage Corporation. Diaz died, and afterwards plaintiff began making the necessary mortgage payments to the then holder of the loan, defendant U.S. Bank Association. When plaintiff fell behind in making timely payments, the bank secured a foreclosure judgment. The defendant servicing agent for the bank withheld executing on the judgment provided that plaintiff fulfilled the terms of successive agreements into which she entered with the agent. The post-judgment agreements recast the terms of the original loan to Diaz, but included -- plaintiff asserts -- illicit financing charges and miscalculations of monies due. Plaintiff claims that the servicing agent, knowing that plaintiff had no more than a primary school education and could not speak English, bypassed her legal-services attorney in having her execute a second agreement -- an agreement that memorialized predatory and fraudulent lending practices.
Plaintiff alleges that the conduct of the defendant bank and the defendant servicing agent violated the Consumer Fraud Act. Defendants argue that a post-judgment settlement agreement involving a non-debtor mortgagor falls outside the purview of the Act.*fn1 The trial court agreed and granted summary judgment in favor of defendants. The Appellate Division reversed.
We hold that the post-foreclosure-judgment agreements in this case were both in form and substance an extension of credit to plaintiff originating from the initial loan. Fraudulent lending practices, even in a post-judgment setting, may be the basis for a Consumer Fraud Act lawsuit. For that reason, we affirm the Appellate Division.
In 1994, plaintiff Blanca Gonzalez and Monserate Diaz purchased a home in Perth Amboy as tenants in common;*fn2 both of their names were placed on the deed.*fn3 In February 1997, Diaz borrowed $72,000 from Cityscape Mortgage Corporation (Cityscape) and executed a Fixed Rate Balloon Note with an annual interest rate of 11.250 percent. In the note, Diaz agreed to make monthly payments of $699.31 until the loan's maturity date, March 3, 2012, when a final balloon payment of $61,384.17 would be due. Plaintiff did not sign the note. As security for the loan, plaintiff and Diaz pledged both of their interests in the property by executing a mortgage in favor of Cityscape. The mortgage agreement prepared by Cityscape listed plaintiff and Diaz as "borrower[s]." Although plaintiff was not personally liable on the note signed by Diaz, in the event of nonpayment of the loan, plaintiff's ownership interest in the home was subject to foreclosure to pay Diaz's debt.
In March 1997, Cityscape assigned the note and mortgage to U.S. Bank National Association (U.S. Bank). U.S. Bank acquired the note and mortgage in this case, along with a bundle of other like instruments, in the bank's capacity as trustee, under a pooling and servicing agreement for Cityscape Home Equity Loan Trust 1997-B, Inc. Wilshire Credit Corporation (Wilshire) was U.S. Bank's servicing agent.*fn4 The role of a servicing agent generally is to collect payments on the loan and, in the event of default, pursue foreclosure or other alternatives to secure payment of the loan. See Adam J. Levitin & Tara Twomey, Mortgage Servicing, 28 Yale J. on Reg. 1, 15, 23, 25-28 (2011).
In 1999, Diaz died intestate.*fn5 Plaintiff continued to live in the home and make payments on the loan. In 2001, plaintiff was laid off from her factory job at Mayfair Company, where she had been employed for seventeen years. After the layoff, she suffered a heart attack and other health difficulties, and in 2003 was approved for Social Security disability benefits.
Over time, plaintiff fell behind on the loan payments. At some point, Wilshire refused to accept further payments from plaintiff. In March 2003, U.S. Bank filed a foreclosure complaint in the Superior Court, Chancery Division, Middlesex County, naming Diaz's estate and plaintiff as defendants. In September 2003, the bank forwarded to plaintiff a Notice of Intent to Foreclose, indicating that $8,108.23 was owed on the loan. Plaintiff was unable to pay the amount due.
In April 2004, the chancery court entered judgment in favor of U.S. Bank in the amount of $80,454.71 plus interest and costs, including $954.55 in attorneys' fees, on the defaulted loan. The court also ordered that the mortgaged premises be sold to satisfy the judgment. A writ of execution was issued, and a sheriff's sale was scheduled for the next month.
Before the sheriff's sale, plaintiff entered into a written agreement with Wilshire, U.S. Bank's servicing agent. In May 2004, Wilshire agreed to forbear pursuing the sheriff's sale contingent on plaintiff paying arrears, including foreclosure fees and costs, of $17,612.84. Plaintiff agreed to make a lump sum payment of $11,000 and then monthly payments of $1,150 through January 20, 2006.*fn6 Wilshire added the caveat: "THIS TERM MAY NOT REINSTATE THE LOAN." Wilshire further agreed to dismiss the foreclosure action when plaintiff made the account current. The agreement ended with the following language: "THIS IS AN ATTEMPT TO COLLECT A DEBT." In negotiating this agreement with Wilshire, Gail Chester, a lawyer for Central Jersey Legal Services, represented plaintiff.
By the end of September 2005, plaintiff had made payments totaling $24,800 under the agreement -- the $11,000 lump sum payment and twelve monthly payments of $1,150. However, plaintiff missed four payments during this period. The trial court calculated, and plaintiff agreed, that she was in arrears $6,461.89 as of October 2005. A sheriff's sale was scheduled but cancelled because the parties entered into a new written agreement in October 2005. Plaintiff was contacted ...