On certification to the Superior Court, Appellate Division.
The opinion of the court was delivered by: Justice Patterson
(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.)
US Bank National Association, etc. v. Maryse Guillaume and Emilio Guillaume, et al.
Decided February 27, 2012
PATTERSON, J., writing for a unanimous Court.
The Court considers whether defendants Maryse and Emilio Guillaume met the requirements for vacating the judgment of foreclosure entered against them after they failed to file an answer to the foreclosure complaint.
On September 7, 2006, the Guillaumes refinanced their New Jersey home through a $210,000 loan from Credit Suisse. The Note was secured by a mortgage naming Mortgage Electronic Registration Systems Inc. as nominee for Credit Suisse, the lender. The loan proceeds satisfied the Guillaumes' prior mortgage and they received $61,719.87 in cash. On October 1, 2006, Credit Suisse assigned the mortgage to US Bank National Association (US Bank) through a Pooling and Servicing Agreement, which provided that the loan servicers would be responsible for collecting mortgage payments and had the authority to extend payment due dates, waive late fees, and "effectuate foreclosure." In November 2006, the Guillaumes were informed in writing that America's Servicing Company (ASC) would be the loan servicer for their mortgage.
The Guillaumes failed to make their mortgage payment in April 2008, and have made no payments since that time. In May 2008, ASC delivered a Notice of Intention to Foreclose (notice of intention) to the Guillaumes informing them that the lender intended to file a foreclosure action, they could cure the default by paying $6,274.02 by June 17, 2008, and they should seek the advice of an attorney. The notice of intention identified ASC, with a telephone number, as the entity to contact if they wished to dispute the calculation of the payment due or that a default had occurred. The name and address of the lender, US Bank, did not appear anywhere on the notice.
On July 15, 2008, US Bank filed a Foreclosure Complaint. The Complaint and accompanying Summons, which were served on the Guillaumes on July 21, 2008, warned that judgment could be entered if they failed to file an answer to the complaint within thirty-five days and that exercising their rights to dispute the debt did not excuse them from this requirement. For several months thereafter, the Guillaumes corresponded with ASC about the possibility of a loan modification to reduce their payment and restore the loan to active status. However, the Guillaumes did not file an answer in the foreclosure action. On August 26, 2008, US Bank requested the entry of a default against the Guillaumes and, on September 5, 2008, US Bank's foreclosure counsel informed the Guillaumes in a "Notice Pursuant to Section 6 of the Fair Foreclosure Act," that US Bank was ready to submit its proofs relating to foreclosure. This notice, unlike the notice of intention, provided the name of the actual lender to be contacted through ASC. On November 11, 2008, US Bank filed and served its motion for entry of a default judgment. The Guillaumes did not respond to the motion. In letters sent to the Guillaumes in February and April 2009, ASC denied the Guillaumes request for a loan modification. On May 6, 2009, the court entered a final judgment of foreclosure.
Several months later, the Guillaumes moved to vacate the default judgment pursuant to Rule 4:50-1, which sets forth grounds for relieving a party from a final judgment. The Guillaumes argued that the foreclosure judgment should be vacated because of the failure to provide the lender's name and address on the May 18, 2008 notice of intention to foreclose, pursuant to the Fair Foreclosure Act (FFA), N.J.S.A. 2A:50-53 to -68. They also argued that they were entitled to rescission of the loan under the Truth In Lending Act (TILA), 15 U.S.C. §§ 1601 to 1667f, due to overcharges and inaccuracies at the closing. The trial judge directed that a corrected notice of intention be served upon the Guillaumes, and rejected the Guillaumes' TILA and other arguments. Thereafter, a revised notice of intention was delivered to the Guillaumes. The notice gave the name of the lender, but not its address. The judge ordered that another revised notice be delivered to the Guillaumes. That notice also did not include the lender's address, but it did include the lender's name, explained that ASC is the loan servicer, and instructed the Guillaumes to contact ASC to discuss any dispute about the $62,523.64 that would be needed to cure the default. The Guillaumes moved to dismiss the foreclosure action because the notice did not comply with statute. On August 30, 2010, the trial court denied the motion to vacate the default and to dismiss the foreclosure complaint.
The Appellate Division panel held that the Guillaumes had not met the standards for relief under Rule 4:50-1. It concluded that the original notice of intention satisfied the purpose of N.J.S.A. 2A:50-56(c)(11) by making the debtor aware of the situation and who and how to contact in order to cure or raise potential disputes. It also rejected the Guillaumes' claim that the TILA violation warranted rescission of the loan, noting the Guillaumes' inability to tender the amount due on their mortgage. It further concluded that US Bank had complied with the evidentiary requirements for foreclosure. The Court granted certification. 208 N.J. 380 (2011).
HELD: The Fair Foreclosure Act requires that foreclosure plaintiffs list on the notice of intention to foreclose the name and address of the actual lender, in addition to contact information for any loan servicer involved in the mortgage. Because the trial court in this matter appropriately ordered the lender to reissue a complaint notice of intention and because the borrowers' other arguments do not warrant a grant of relief, the Court affirms the denial of their motion to vacate the default judgment of foreclosure.
1. When a court has entered a final judgment by default, pursuant to Rule 4:43-2, relief is granted sparingly. The Guillaumes' raised arguments under subsection (a) of Rule 4:50-1, which permits relief from a judgment if there was excusable neglect and a meritorious defense; subsection (d), if the judgment is void; and subsection (f), for "any other reason justifying relief from the operation of the judgment" if truly exceptional circumstances are present. The purpose of Rule 4:50-1 is to reconcile the strong interests in finality of judgments and judicial efficiency while giving courts the authority to avoid an unjust result. (pp. 17-20)
2. To prevail under Rule 4:50-1(a), the Guillaumes were required to show both excusable neglect and a meritorious defense to the foreclosure. With regard to excusable neglect, the trial court properly rejected the Guillaumes' claim that they were confused by US Bank's communications to them concerning a potential loan modification at a time when the foreclosure action was underway. The Guillaumes were fully informed that they were required to file an answer to the foreclosure complaint, and they also were informed that their efforts to secure a loan modification had not been successful before the trial court entered the default judgment. The record reflects no excuse for their inaction. With regard to the meritorious defense requirement, the Guillaumes asserted two defenses to the foreclosure claim: 1) the notice of intention violated the FFA; and 2) they are entitled to rescission of the loan because the lender violated TILA by overcharging for the recording fees at the time of the 2006 closing. (pp. 20-22)
3. The notice of intention served on the Guillaumes did not comply with the FFA. N.J.S.A. 2A:50-56(c)(11) expressly states that the notice must include the name and address of the lender and the telephone number of a representative of the lender whom the debtor may contact if the debtor disagrees that a default occurred or contests the payment amount needed to cure the default. The FFA defines "lender" as the entity that currently holds the mortgage; therefore, the Legislature has unmistakably directed that a homeowner shall be advised of the exact entity to which he or she owes the balance of the loan. Although the identification and contact information of a loan servicer is important information to include in the notice, it does not meet the requirements for demonstrating substantial compliance with the FFA. The Court holds that the FFA requires that a notice of intention include the name and address of the actual lender, in addition to contact information for any loan servicer who is charged by the lender with the responsibility to accept mortgage payments and/or negotiate a resolution of the dispute between the lender and the homeowner. The Court's decision applies retroactively because it is applying the plain language of a 17-year-old statute. (pp. 22-31)
4. The FFA does not address the remedy for violating the notice-of-intention requirements. The Court overrules Bank of New York v. Laks, 422 N.J. Super. 201 (App. Div. 2011), which held that when the failure to identify the lender in the notice of intention is raised prior to the entry of the judgment the only remedy available to a trial court is dismissal of the foreclosure action without prejudice. The Court holds that a trial court adjudicating a foreclosure complaint in which the notice of intention does not comply with N.J.S.A. 2A:50-56(c)(11) may dismiss the action without prejudice, order the service of a corrected notice, or impose other appropriate remedies. In deciding on an appropriate remedy, a trial court should consider the impact of the defect upon the homeowner's information about the loan's status and on the opportunity to cure the default. Here, after considering the Guillaumes' familiarity with the status of their mortgage as reflected in their loan modification negotiations with ASC and other conduct, the trial court's remedy of a cure constituted a proper exercise of its discretion. The FFA does not provide a meritorious defense to this action within the meaning of Rule 4:50-1(a). (pp. 31-38)
5. The Court disagrees with the Guillaumes' argument that the original lender's $120 recording fee overcharge in violation of the TILA entitles them to the remedy of rescission and constitutes another meritorious defense to the foreclosure. Rescission restores the original position of the parties-the creditor returns any monies paid by the debtor in exchange for the debtor returning all of the disbursed funds. Courts adjudicating TILA claims have the discretion to deny rescission if the homeowner cannot tender the amount due on the loan. The Guillaumes failed to tender the balance of their loan in conjunction with their demand for rescission; therefore, the TILA does not provide the Guillaumes with a meritorious defense to the foreclosure action. Because the Guillaumes have not met their burden to demonstrate either excusable neglect or a meritorious defense within the meaning of Rule 4:50-1(a), they have not demonstrated a basis under the rule to vacate their default. (pp. 38-42)
6. There also is no basis on which to accept the Guillaumes' argument, newly raised before the Court, that the default judgment should be vacated under Rule 4:50-1(d). Finally, the Guillaumes' argument that the lender provided incompetent evidence does not warrant relief under Rule 4:50-1(f), because the evidence complied with the governing rule in effect at that time. (pp. 42-45)
7. The Guillaumes chose not to appear in the foreclosure proceedings, and the result was a default judgment. The trial court properly determined that Rule 4:50-1 does not warrant an order vacating the default judgment. (p. 46)
The judgment of the Appellate Division is AFFIRMED, as modified.
JUSTICES LONG, LaVECCHIA, ALBIN, and HOENS join in JUSTICE PATTERSON'S opinion. CHIEF JUSTICE RABNER and JUDGE WEFING (temporarily assigned) did not participate.
JUSTICE PATTERSON delivered the opinion of the Court.
In the setting of an unprecedented residential lending crisis in our state, the Court considers the Legislature's foreclosure statutes and federal truth-in-lending law. Seeking relief from a default judgment entered in a foreclosure case, defendants Maryse and Emilio Guillaume attempt to demonstrate excusable neglect and the existence of a meritorious defense, Rule 4:50-1(a), that the trial court's judgment is void, Rule 4:50-1(d), or that this case presents exceptional circumstances, Rule 4:50-1(f). As to the meritorious defenses compelled by Rule 4:50-1(a), the Guillaumes invoke the Fair Foreclosure Act (FFA), N.J.S.A. 2A:50-53 to -68, and the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 to 1667f. They contend that plaintiff US Bank National Association (US Bank) violated the FFA by listing the name and address of a loan servicer -- rather than the name of the lender itself -- on the Notice of Intention to Foreclose (notice of intention) required by N.J.S.A. 2A:50-56. They argue that TILA authorized them to rescind their loan by virtue of a $120 overcharge of a recording fee.
The trial court concluded that the Guillaumes had not demonstrated excusable neglect for their failure to defend the foreclosure action. Rejecting the Guillaumes' assertion of a meritorious defense to US Bank's foreclosure claim, the court held that US Bank had substantially complied with the FFA, but directed it to issue a corrected notice of intention listing the lender. It further concluded that the $120 overcharge in a recording fee did not permit rescission of the transaction pursuant to TILA. Accordingly, the trial court denied the Guillaumes' motion to vacate the default judgment.
In a per curiam opinion, an Appellate Division panel affirmed, holding that the Guillaumes had failed to demonstrate excusable neglect or a meritorious defense as required by Rule 4:50-1(a), or the existence of exceptional circumstances under Rule 4:50-1(f). The panel held that US Bank's original notice of intention, listing the name of the loan servicer rather than the lender, satisfied the purpose of the FFA, and that because the Guillaumes could not tender the balance due on their loan, TILA provided no meritorious defense to US Bank's foreclosure action.
We now affirm, as modified, the Appellate Division's judgment. We concur with the Appellate Division panel that the Guillaumes have failed to demonstrate excusable neglect or a meritorious defense, and that they are therefore not entitled to relief under Rule 4:50-1(a). We also agree with the Appellate Division that the Guillaumes have failed to establish a meritorious defense under the FFA. We do not concur with the Appellate Division's determination that US Bank's original notice of intention, listing the name of the loan servicer rather than the lender, substantially complied with N.J.S.A. 2A:50-56(c)(11). We hold that N.J.S.A. 2A:50-56(c)(11) requires that foreclosure plaintiffs list on the notice of intention the name and address of the actual lender, in addition to contact information for any loan servicer involved in the mortgage. We further hold that a court adjudicating a foreclosure action in which N.J.S.A. 2A:50-56(c)(11) is violated may dismiss the action without prejudice, permit a cure or impose such other remedy as may be appropriate to the specific case, and that the trial court's decision to order US Bank to cure the defect in its notice of intention was a proper exercise of its discretion. To the extent that Bank of New York v. Laks, 422 N.J. Super. 201 (App. Div. 2011), holds that the only remedy available to a trial court for a violation of N.J.S.A. 2A:50-56(c)(11) is dismissal without prejudice, it is overruled.
We affirm the Appellate Division's holding that the Guillaumes' other contentions do not satisfy the requirements of Rule 4:50-1. We concur with the Appellate Division panel that because the Guillaumes could not tender the balance due on their loan, there was no abuse of discretion in finding that TILA does not give rise to a meritorious defense to the foreclosure action. We affirm the panel's holding that the Guillaumes' claim that the trial court's judgment was premised upon incompetent evidence is not a foundation for a finding of "exceptional circumstances" under Rule 4:50-1(f). We find no basis to accept the Guillaumes' contention -- newly raised before this Court -- that the default judgment should be vacated under Rule 4:50-1(d).
On December 30, 1992, the Guillaumes and another individual purchased a home at 542 Prospect Street, East Orange, New Jersey, with a fixed-rate purchase money mortgage. In 1999, after the transfer of the third individual's interest in the property to the Guillaumes, they refinanced to a variable rate mortgage. On September 7, 2006, Maryse Guillaume obtained a $210,000 fixed rate loan from Credit Suisse, with a 6.75% interest rate and a thirty-year term. The Note, signed by Maryse Guillaume on September 7, 2006, was secured by a mortgage on the Guillaumes' home naming Mortgage Electronic Registration Systems Inc. as nominee for Credit Suisse, the mortgagee. The Guillaumes also signed a HUD-1 Settlement Statement, a Uniform Residential Loan Application, and a Federal Truth in Lending Disclosure Statement. The loan proceeds satisfied the Guillaumes' prior mortgage in the amount of $123,189.93, and Maryse Guillaume received $61,719.87 in cash.
On October 1, 2006, Credit Suisse assigned the Guillaumes' mortgage to US Bank through a Pooling and Servicing Agreement. The assignment of the mortgage was executed on July 14, 2008, and recorded on July 31, 2008, with a corrected assignment executed on April 10, 2009, and recorded on April 15, 2009. The Pooling and Service Agreement provided that the servicer of a loan would be responsible for collecting payment, and had the authority to extend payment due dates, waive late payment fees and "effectuate foreclosure" of properties securing affected mortgage loans.
On November 14, 2006, the Guillaumes were informed in writing that America's Servicing Company (ASC) had been assigned responsibility to be the loan servicer for their mortgage. The letter advised that ASC's name would "appear on your monthly statements and other communications related to your mortgage loan." Between December 2006 and March 2008, the Guillaumes sent their mortgage payments to ASC. However, the Guillaumes failed to make their mortgage payment in early April of 2008, and have made no payments at all since that date. On May 13, 2008, having missed two mortgage payments, Maryse Guillaume contacted ASC and identified a housing counselor as her representative with respect to her loan.
On May 28, 2008, ASC delivered a notice of intention dated May 18, 2008, to the Guillaumes, informing them that they had missed two payments totaling $4,091.88, advising them that they could cure the default by making a payment in the amount of $6,274.02 by June 17, 2008, and providing notice of the lender's intention to file a foreclosure action. The notice of intention urged the Guillaumes to "immediately seek the advice of an attorney(s) of your own choosing concerning this residential mortgage default." It suggested that the Guillaumes communicate with the New Jersey State Bar Association, the county Lawyers Referral Service or the county Legal Services Offices, provided these organizations' telephone numbers, and also identified agencies with housing counseling services. The notice of intention, issued by ASC's "Default Management Department," instructed the Guillaumes to direct mortgage payments to "America's Servicing Co., P.O. Box 1820, Newark, NJ 07101-1820." The notice also identified ASC, with a telephone number, as the entity to contact should the Guillaumes dispute that a default had occurred or the loan servicer's calculation of the payment due. The name and address of the lender, US Bank, did not appear anywhere on the notice of intention.
This action began on July 15, 2008, when US Bank filed a Foreclosure Complaint in the Superior Court of New Jersey, Chancery Division. The Complaint and an accompanying Summons, informing the Guillaumes that judgment could be entered against them if they failed to file an answer within thirty-five days, were served upon Emilio Guillaume on July 21, 2008. The Complaint included a notice advising the Guillaumes that exercising their rights to dispute the debt or to request documents "does not mean that you are not also required to respond in accordance with the summons attached hereto, that indicates that you have thirty-five (35) days from the time of service in which to file [an] answer with the court."
For several months after the filing of the Complaint, with the assistance of a housing counseling agency, the Guillaumes corresponded with ASC about the possibility of a loan modification to reduce their monthly payment and restore their loan to active status. However, the Guillaumes did not file an answer or otherwise appear in the foreclosure action. On August 26, 2008, the due date for the answer, US Bank requested a default judgment against the Guillaumes and their co-defendant, the City of East Orange, for "failure to plead or otherwise defend" as required by the court rules.
On September 5, 2008, US Bank's foreclosure counsel advised the Guillaumes, in a "Notice Pursuant to Section 6 of the Fair Foreclosure Act," that "US Bank National Association, as Trustee for CSAB Mortgage-Backed Pass-Through Certificates, Series 2006-3, the Plaintiff in the above-captioned matter, is now ready to submit its proof to the Superior Court Foreclosure Unit for entry of a Final Judgment of Foreclosure, relating to the within matter." In contrast to the notice of intention, the September 5, 2008 notice provided the name of the actual lender, to be contacted through ASC. US Bank filed and served its notice of motion for entry of a default judgment on November 11, 2008, advising the Guillaumes that an objection to the motion was required to be in writing and filed with the New Jersey Office of Foreclosure within ten days. The Guillaumes did not respond to US Bank's motion. By ...