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Countrywide Home Loans, Inc v. Linda M. Halas and


December 20, 2011


On appeal from the Superior Court of New Jersey, Chancery Division, Union County, Docket No. F-21408-08.

Per curiam.


Argued December 6, 2011 -

Before Judges Fisher and Baxter.

Defendants Linda and Peter Halas appeal from a March 18, 2011 Chancery Division order denying their motion to vacate a default judgment of foreclosure. We agree with defendants' assertion that the judge mistakenly evaluated their motion under a subsection of Rule 4:50-1 that they had not advanced as a basis for relief, and in so doing, failed to address the grounds upon which they relied. We reverse and remand for further proceedings.


On July 21, 2006, defendants obtained a thirty-year home mortgage from Nations Home Mortgage Corporation. Due to illness and a reduction in their income, defendants were unable to make payments on the mortgage after January 2008. In June 2008, Nations assigned the mortgage to plaintiff Countrywide Home Loans, Inc. (Countrywide Loans). Plaintiff filed a foreclosure complaint against defendants on June 4, 2008. Although the date of service of the complaint on defendants is not part of the record on appeal, defendants acknowledge they were served with the June 4, 2008 summons and complaint shortly after it was filed. They did not file an answer.

On February 6, 2009, plaintiff filed an amended complaint changing the designation of plaintiff from Countrywide Home Loans, Inc. to Countrywide Home Loans Servicing, L.P. (Countrywide Servicing). The February 2009 amended complaint alleged that Countrywide Loans assigned the Halas mortgage on February 4, 2009 to Countrywide Servicing. Defendants failed to file an answer to the February 4, 2009 amended complaint.

On March 31, 2009, default was entered against defendants by the Clerk of the Superior Court. On May 21, 2009, plaintiff sent to defendants a notice to cure pursuant to a section of the New Jersey Fair Foreclosure Act, N.J.S.A. 2A:50-58, advising defendants of the procedures available to them to cure their default. Plaintiff also advised defendants of their right to participate in a mediation program sponsored by the Judiciary, and enclosed a notice describing that program. Defendants did not avail themselves of that opportunity.

Before the time when default judgment was ultimately entered, plaintiff filed a second amended complaint, which was identical to its original June 2008 complaint. The second amended complaint, like the June 2008 complaint, designated Countrywide Home Loans, Inc. as the owner of the Halas mortgage.

On October 7, 2009, plaintiff moved for the entry of judgment by default, asserting that more than six months had passed since the entry of default without defendants having moved to vacate the default. Defendants filed no opposition. Final judgment by default was issued a year later, in October 2010. On January 28, 2011, defendants filed the motion to vacate default judgment that is the subject of this appeal.

Because defendants' motion to vacate the default judgment was based almost entirely on plaintiff's treatment of defendants in connection with a forbearance agreement plaintiff proposed to defendants in July 2009, we shall describe the "Forbearance Agreement" before proceeding to a discussion of the grounds for relief defendants asserted in their motion.

The Forbearance Agreement specified that if defendants made monthly payments of $2150 for the six-month period between July 2009 and January 2010, plaintiff would "suspend any scheduled foreclosure sale" and would consider whether defendants were eligible for "loan modification." The Forbearance Agreement contained the following terms and conditions:

A. Foreclosure Activity. The Servicer will suspend any scheduled foreclosure sale, provided I continue to meet the obligations under this Agreement. If this Agreement terminates, however, then any pending foreclosure action will not be dismissed and may be immediately resumed from the point at which it was suspended, and no new notice of default . . . or similar notice will be necessary to continue the foreclosure action, all rights to such notices being hereby waived to the extent permitted by

[a]pplicable [l]aw. . . . .

C. Additional Assistance. During the Deferral Period, Servicer will review my Loan to determine whether additional default resolution assistance can be offered to me. At the end of the Deferral Period, either

(1) I will be required to recommence my regularly scheduled payments and to make additional payments, on terms to be determined by Servicer, until all past-due amounts owed under the Loan Documents have been paid in full, (2) I will be required to reinstate my Loan in full, (3) Servicer will offer to modify my Loan, (4) Servicer will offer me some other form of payment assistance or alternative to foreclosure . . ., or (5) if no feasible alternative can be identified, Servicer may commence or continue foreclosure proceedings or exercise other rights and remedies[.]

D. No Modification. I understand that the Agreement is not a forgiveness of payments on my Loan or a modification of the Loan Documents. I further understand and agree that the Servicer is not obligated or bound to make any modification to the Loan Documents or provide any other alternative resolution of my default under the Loan Documents.

We turn now to a discussion of the grounds defendants asserted in support of their motion. They relied upon three subsections of Rule 4:50-1. First, citing subsection (d), they argued in their brief that the judgment was void because judgment had been entered in favor of Countrywide Loans, even though the mortgage was owned by Countrywide Servicing, as asserted in the amended complaint of February 4, 2009.

Second, relying on subsection (e) of Rule 4:50-1, defendants asserted "it is not equitable that this judgment be permitted to stand." They pointed to plaintiff's "misrepresentations" and "outright lies" concerning "the loan modification process" and plaintiff's "failure to credit [them] with the payments [they] made." In particular, defendants maintained that in reliance on plaintiff's promise to consider them for loan modification, they made not six monthly payments of $2150, but instead ten, starting in July 2009. After receiving no definitive statement from plaintiff about whether they had been approved for a loan modification, defendant Peter Halas began contacting plaintiff's customer service representatives. He also accessed plaintiff's loan modification database and learned that even though he and wife had made payments of $2150 each month, plaintiff's database did not reflect those payments. He asserted that one of plaintiff's customer service representatives advised him that plaintiff's "business rules are such that [plaintiff's] computer automatically re-sets income to 0 (zero) whenever there is an interaction with the customer."

Defendants asserted that because of this computer programming error, they were deemed to have no income, and were immediately rejected from any consideration for loan modification. Defendants explained that throughout the entire ten-month period that they were dutifully paying $2150 per month, they believed that plaintiff was processing their loan modification application when, in fact, "nothing had been going on for months because of the way [plaintiff] was re-setting its computers each time inquiry was made." Not until December 2010 did plaintiff advise them they had been "denied any loan modification." Defendants asserted that these "misrepresentations," and plaintiff's failure to credit defendants for the ten payments they made while their application for loan modification was pending, made it "inequitable" for defendants to reap the benefits of the default judgment.

Third, pointing to the "other reasons" required by subsection (f), defendants asserted that plaintiff induced them to make more than $22,000 in payments on the promise that defendants would be fairly considered for a loan modification even though plaintiff never had any intention of doing so. Defendants also asserted that plaintiff "lied" by claiming that defendants had spurned plaintiff's offer of a loan modification, when in fact no such offer had ever been extended.

At the conclusion of oral argument on March 18, 2011, the judge observed that defendants were obliged to demonstrate "both a meritorious defense and excusable neglect." The judge referred only to "excusable neglect," which is one of the grounds for relief from judgment under Rule 4:50-1, and which is contained in subsection (a) of that Rule. The judge focused on the "excusable neglect" portion of the Rule, even though, as we have discussed, defendants were not relying on that subsection, but were instead citing subsections (d), (e) and (f).

Proceeding on the mistaken belief that defendants were relying on subsection (a) "excusable neglect" as the basis for relief from judgment, the judge found that defendants' reliance on the July 2009 forbearance letter, and their expectation that plaintiff would "work with them" toward establishing a loan modification, failed to constitute "excusable neglect" within the meaning of Rule 4:50-1(a). The judge observed "that two years went by without the filing of an answer" before the default judgment was ultimately entered in October 2010. The judge found that defendants had ample opportunity to file an answer, even after they received the forbearance letter, thereby negating what the judge mistakenly believed was a claim of "excusable neglect."

The judge also held that defendants had failed to establish a meritorious defense. He pointed to the portion of the forbearance letter specifying that defendants' participation in the forbearance program would not suspend the foreclosure proceedings and would not serve as a permanent payment reduction, but simply as a suspension of the sheriff's sale while the option of loan modification was being pursued. At the conclusion of oral argument, the judge signed a confirming order denying defendants' motion.

However, he ordered that the sheriff's sale be held in abeyance until plaintiff resolved the confusion surrounding the issue of which entity presently held the mortgage, Countrywide Loans, as asserted in the June 4, 2008 complaint, or instead Countrywide Servicing, as asserted in the amended complaint of February 6, 2009. The judge noted that plaintiff had filed a second amended complaint on September 17, 2010, in which plaintiff essentially withdrew its contention that Countrywide Servicing was the proper entity, and reasserted its initial June 4, 2008 allegation that Countrywide Loans owned the mortgage. The judge advised the parties that the sheriff's sale would be deferred until plaintiff provided an affidavit supporting its contention that Countrywide Loans was the proper plaintiff. Plaintiff provided such a certification on April 19, 2011, causing the judge to issue a supplemental order on June 1, 2011, holding that plaintiff had "satisfied the condition" imposed by the March 18, 2011 order. The June 1, 2011 order also "confirmed" that defendants' motion to vacate the default judgment was denied.

On appeal, defendants present a single claim:


In particular, defendants assert the judge erred by addressing subsection (a) of Rule 4:50-1, thereby failing to address the three subsections of the Rule that defendants had actually presented in their brief and argued before the court, namely:

(d) the judgment or order is void; (e) . . . it is no longer equitable that the judgment or order have prospective application; or

(f) any other reason justifying relief from the operation of the judgment or order.

[R. 4:50-1(d), (e) and (f).]

For its part, plaintiff urges us to affirm the order under review, arguing that the forbearance letter was issued long after the time to answer had already expired and that, in any event, nothing in the forbearance letter provides an equitable defense to foreclosure.


An application to vacate a default judgment is "viewed with great liberality, and every reasonable ground for indulgence is tolerated to the end that a just result is reached." Marder v. Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div.), aff'd, 43 N.J. 508 (1964). See also Mancini v. EDS, 132 N.J. 330, 334 (1993). Nevertheless, a default judgment will not be disturbed unless the movant establishes grounds entitling him to such relief, and presents a meritorious defense. Ibid. Moreover, "[w]ithout more, . . . having a meritorious defense is ordinarily not a ground for setting aside a default judgment." Morales v. Santiago, 217 N.J. Super. 496, 505 (App. Div. 1987). The decision whether to vacate a judgment on one of the grounds specified in Rule 4:50-1 is a determination left to the sound discretion of the trial judge, whose decision will not be disturbed absent an abuse of discretion. F.B. v. A.L.G., 176 N.J. 201, 207 (2003).

Here, where the judge mistakenly neglected to address the very grounds for relief that defendants presented, we will not extend such deference to the judge's decision. Defendants were entitled to a thorough review of the arguments they advanced. The judge inadvertently neglected to conduct such a review. Although the judge did, to some extent, address defendants' assertions concerning the forbearance agreement/loan modification program, he did so through the prism of a subsection (a) "excusable neglect" analysis. We cannot determine whether the judge would have reached the same result if he had instead applied the three grounds defendants presented, subsections (d), (e) and (f). We reverse the order denying defendants' motion to vacate the foreclosure judgment, and remand for consideration of the grounds for relief defendants presented in their January 2011 motion.

Reversed and remanded. Jurisdiction is not retained.


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