November 18, 2011
THERESA JORDAN, PLAINTIFF-RESPONDENT,
RICHARD L. MONTGOMERY, GEORGE A. RINGEL, H20 LEISURE, ROSE & DE FUCCIO, SCHENCK, PRICE, SMITH & KING, PATRICIA GARITY SMITS AND MBNA AMERICAN BANK, N.A., DEFENDANTS, AND PROPERTY ASSET MANAGEMENT, INC., DEFENDANT-APPELLANT.
On appeal from Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-191-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 5, 2011
Before Judges Fuentes, Graves and Koblitz.
After a bench trial, Property Asset Management (Property Asset) appeals the portion of the November 18, 2010 order that excluded the value of a PNC Bank (PNC) line of credit and a second mortgage held by U.S. National Bank Association, termed the "Litton Loan," in the equitable lien placed on Dr. Theresa Jordan's property. After reviewing the record in light of the contentions advanced on appeal, we remand for a clarification of the trial judge's opinion.
Following a divorce from her prior husband, Jordan gained sole ownership of her home in Millburn. In 1993, Jordan took out a mortgage of approximately $183,000 from Source Mortgage Co., Inc., which was later assigned to GMAC Mortgage Corporation. In 1996, Jordan married a colleague, Richard Montgomery.
In June 2001, Jordan fell and sustained a serious brain injury, rendering her unable to read, write, or comprehend most things.*fn1 After her injury, Montgomery took over her finances, but failed to keep up payments on Jordan's debts, including the mortgage on her home. Faced with the prospect of foreclosure, Montgomery forged Jordan's signature to a power of attorney. In an attempt to avoid foreclosure, on May 20, 2004, Montgomery sold Jordan's home to a straw man, George Ringel, without her consent.
Montgomery subsequently purchased the house in his own name from Ringel, obtaining a mortgage from BNC Mortgage on October 21, 2005, in the amount of $544,000. This mortgage was assigned to Property Asset on August 3, 2006. Property Asset later commenced a foreclosure action on this mortgage that resulted in the entry of a final default judgment on July 28, 2008.
Jordan first became aware of Montgomery's actions and the impending foreclosure shortly after May 20, 2009, when Montgomery suffered a stroke and confessed to mismanaging Jordan's finances. Montgomery later signed a statement admitting that he had forged Jordan's name on the power of attorney. Jordan filed a complaint against Montgomery, Ringel, Property Asset, and others, accusing Montgomery of fraud and seeking to have the house conveyed back to her and the mortgage held by Property Asset invalidated. Montgomery defaulted and Jordan settled with Ringel.
The trial judge determined that Jordan was an innocent victim of fraud and ordered the property conveyed back to her free of any liens filed against Montgomery, including those held by Property Asset. To prevent unjust enrichment, the judge ordered that Property Asset be equitably subrogated to the Source/GMAC mortgage that had previously been satisfied, and that an equitable lien be issued to Property Asset in the amount of the encumbrances placed on the property by Jordan that were satisfied on her behalf through Montgomery's sale of the property. Property Asset does not appeal from these rulings.
The trial judge included in the equitable lien the GMAC mortgage of $198,148; a Small Business Administration loan of $24,379 referred to as the "flood loan," which Jordan took out in 1999 in the amount of $30,000 to repair damages to her home caused by Hurricane Floyd; interest payments of $65,611; and $57,502 in taxes and hazard insurance that was paid on the property. The equitable lien thus totaled $345,640.
Property Asset appeals the trial judge's decision not to include the two other debts. It argues that the judge improperly ruled that Property Asset failed to show Jordan was responsible for or had knowledge of the Litton Loan, which totaled $147,364 at the time of payoff. Property Asset also argues that the judge failed to include the value of the PNC line of credit issued to Jordan prior to her injury. The value of that loan was $16,272 at the time of its payoff in May 2004.
Appellate review of a trial judge's fact-finding in a non-jury case is limited. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974). A trial judge's factual findings will not be overturned "unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Id. at 484 (quoting Fagliarone v. Twp. of N. Bergen, 78 N.J. Super. 154, 155 (App. Div. 1963)). This is especially true when the trial court's holdings were based on determinations of witness credibility. State v. Locurto, 157 N.J. 463, 472-75 (1999).
To avoid Jordan's unjust enrichment, the trial court imposed an equitable lien on her property in the amount proven by Property Asset to exist as a lien prior to Montgomery's fraudulent activity. Unjust enrichment may constitute a basis for imposing an equitable lien. VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 553-54 (1994) (citations omitted). To recover under this theory of liability, Property Asset "must prove that [Jordan] was enriched, viz., received a benefit, and that retention of the benefit without payment therefor would be unjust." Callano v. Oakwood Park Homes Corp., 91 N.J. Super. 105, 109 (App. Div. 1966). Neither Property Asset nor Jordan disagrees with the trial judge's application of an equitable lien in this matter.
Property Asset maintains that it met its burden of proof with regard to the $147,364 value of the Litton Loan. It contends that, in her verified complaint, Jordan "admitted" to taking out this mortgage when she indicated that she was unaware that this loan was in default, but did not specifically assert that she was unaware of its existence. Jordan's complaint states the following:
31. On January 10, 2003, a foreclosure was instituted by U.S. National Bank Association to foreclose a mortgage in the principal amount of $118,200.00 .
32. Prior to June 2009, Jordan was unaware that this mortgage was in default and unaware of the existence of this foreclosure.
33. Unbeknownst to Jordan, Montgomery failed to make the payments on this mortgage despite the fact the funds were available from Jordan's earnings; and, Montgomery concealed the existence of the default and the foreclosure.
Jordan contends that the "[c]omplaint did not admit that the Litton Loan was placed by Dr. Jordan or was bona fide; rather, it is stated [only] that this was in foreclosure."
Additionally, she claims that there is no admission of responsibility for the Litton Loan in the five-page pretrial order from September 16, 2010, and that the facts contained in the pretrial order supersede any statements made in the verified complaint.
Rule 4:25-1(b) states the following:
When entered, the pretrial order becomes part of the record, supersedes the pleadings where inconsistent therewith, and controls the subsequent course of action unless modified at or before the trial or pursuant to R. 4:9-2 to prevent manifest injustice. The matter of settlement may be discussed at the sidebar, but it shall not be mentioned in the order.
The pretrial order has been hailed as "a cornerstone" in the trial of cases. Lertch v. McLean, 18 N.J. 68, 72 (1955). As the rule states, it "controls the subsequent course of action unless modified at or before trial or . . . to prevent manifest injustice." R. 4:25-1(b). Pursuant to this rule, the Court has stressed that "[q]uestions or issues not presented in the pretrial order are deemed to be waived . . . ." Lertch, supra, 18 N.J. at 73. As Jordan points out, Property Asset did not seek to modify the pretrial order based on the statements in the complaint. Therefore, she is not bound by any acknowledgement of the Litton Loan in her complaint.
Property Asset provided no affirmative proof of Jordan's knowledge of or responsibility for this loan, failing even to produce the original paperwork for this mortgage. The trial judge stated that the Litton Loan could have "been just part of the wheeling and dealing in the deal in the first mortgage, but I don't find where." He also commented that "nobody brought out proof that . . . they had consolidated two loans and what she was paying was a $355,000 mortgage debt with one payment."
The trial judge based his decision on Jordan's trial testimony denying responsibility for the Litton Loan. He stated that "I find her testimony credible, she was asked did you have another mortgage for [$]147,000. So I don't think defendants carried their burden that they should have any equitable lien." We defer to the trial judge's credibility findings, which are binding upon us so long as they are supported by "adequate, substantial, and credible evidence" in the record. Triffin v. Automatic Data Processing, Inc., 411 N.J. Super. 292, 305 (App. Div. 2010) (citing Rova Farms, supra, 65 N.J. at 484). This deference is informed by our recognition that the trial judge has had the opportunity to make first-hand credibility assessments of the witnesses and therefore has a "'feel of the case' that can never be realized by a review of the cold record." N.J. Div. of Youth & Family Servs. v. L.L., 201 N.J. 210, 226 (2010). The trial judge's factual findings with respect to Jordan's responsibility for the Litton Loan are supported by sufficient credible evidence; thus, we must accept his findings. State v. Arthur, 184 N.J. 307, 320 (2005).
Property Asset also argues that the PNC mortgage, or "line of credit," in the approximate amount of $16,000 was wrongfully excluded from its equitable lien. Property Asset states that "[p]laintiff cannot recall the details of the loan, but she admits her signature and, as a result of payment, the lien was also cancelled of record."
Jordan argues that Property Asset did not satisfy its burden of showing an entitlement to the PNC line of credit, as it was "disclosed in the second transaction -- the conveyance from Ringel to Montgomery -- without any explanation why this was not discovered and paid off on the first transaction." She also argues that a "line of credit" had already been added to the value awarded for the first mortgage.
The trial judge did not specifically mention PNC, but did mention a "line of credit," or "equity," when articulating the award for the first mortgage. He stated that she said she also had been offered a line of credit or -- or like a line of equity, and she thought what she had owed was approximately [$]183,000 at the time.
Now, I -- I interpret that from her testimony and from the records I referred to that when the sheriff was paid off the [$]198,000 that included the mortgage she recognized, plus her equity loan . . ..
Thus, it appears that the trial judge intended to include both the GMAC mortgage and the debt on the PNC line of credit in the award of $198,148 included in the equitable lien. The trial judge evidently deduced that both debts were included in the payment recorded on the HUD-1 statement of May 20, 2004, when Montgomery sold Jordan's home to Ringel.
Jordan testified that the principal amount on the GMAC mortgage was approximately $183,000, which was also supported by the note of assignment when the mortgage was transferred to GMAC. The amount remaining on the PNC line of credit was $16,272. The trial judge may have assumed that the $198,148 payment to the Sheriff combined these two values. The evidence, however, is not consistent with that view.
What constitutes the difference between the principal amount of $183,000 on the GMAC mortgage and the $198,148 payoff is therefore unknown. No documentation as to the amount remaining on the GMAC mortgage at the time of foreclosure was produced, and therefore it is unclear whether the first mortgage was valued at the entire $198,148, or whether some other payment was incorporated in the payoff to the Sheriff on May 20, 2004. We can only speculate that perhaps the difference reflects interest that accrued on the mortgage. Whatever that difference may represent, we do not believe that the $198,148 figure incorporated the PNC line of credit.
The HUD-1 statement of May 20, 2004, as well as Ringel's closing attorney trust account ledger, indicate that the $198,148 payoff took place at this time. Yet, the Notice of Lis Pendens in connection with a foreclosure filed on the PNC line of credit was not sent until February 24, 2005. If the $198,148 payment had satisfied Jordan's debt to PNC, then PNC would have no reason to foreclose on that same loan almost one year later.
Additionally, the May 20, 2004 HUD-1 statement makes clear that the $198,148 was one payment, marked solely as "Payoff 1st Mortgage." A separate payment of $16,272 made to PNC's attorneys is listed on the September 7, 2005 HUD-1 statement, when Montgomery bought the house back from Ringel. If these statements are accurate, then it would be impossible for the $198,148 payment to the Sheriff to have incorporated the $16,272 to PNC, as the two debts were paid off separately on different dates over one year apart.
The trial judge's reference to a "line of equity" indicated that he intended to award more than just the GMAC mortgage to Property Asset. Although Jordan's argument that the PNC loan inexplicably appeared on the 2005 HUD-1 statement without having first appeared on the 2004 HUD-1 statement remains unanswered, the evidence may support the finding that Property Asset is entitled to an additional $16,272.
As we are unable to determine how the trial judge accounted for the PNC line of credit in his calculation of the equitable lien, we remand this issue for clarification. The trial judge should explain whether or not the equitable lien he awarded includes this amount, and, if so, how he came to the conclusion that the $198,148 paid off at the closing in 2004 included this loan. If he did not include the PNC line of credit in the $198,148, or included some other loan instead, he may decide to reconsider and adjust the equitable lien accordingly.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.