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Sutton Funding, LLC v. Robert Bagley and Marsha Bagley


February 29, 2012


On appeal from the Superior Court of New Jersey, Chancery Division, Monmouth County, Docket No. F-46495-08.

Per curiam.


Argued February 1, 2012 -

Before Judges Fuentes, Graves, and Harris.

This is an appeal arising from the foreclosure of a residential mortgage. Defendants Robert Bagley and Marsha Bagley seek review of the Chancery Division's denial of their motion to vacate the default judgment entered against them. They assert, among other things, that if permitted to interpose an answer they would defend the action on the ground of plaintiff Sutton Funding, LLC's (Sutton) alleged lack of standing. Defendants also assert that they "were the clear victims of common law predatory lending" practices and Sutton is subject to several statutory defenses. Without deciding the ultimate outcome of defendants' claims, we nevertheless determine that they possess meritorious defenses that deserve adjudication by either motion practice or trial. We are satisfied that their failure to timely answer the complaint was the product of excusable neglect. Accordingly, we reverse and remand for further proceedings.


In November 2006, defendants borrowed $337,250 from New Century Mortgage Corporation (New Century). The indebtedness was secured by a first mortgage on defendants' dwelling in Neptune. The mortgage was given in the name of Mortgage Electronic Registration Systems, Inc. (MERS), as a nominee for New Century and its successors and assigns.

According to Jill Orrison's certification,*fn1 a "Litigation Management Associate for HomEq Servicing, the mortgage servicer . . . and authorized representative of [Sutton]," defendants' loan was "purchased by [Sutton] from the originating lender, [New Century] . . . [on] March 16, 2007 and the purchase price for this specific loan was $323,483.89."

The documentary evidence supporting Orrison's declaration included a few pages from a spreadsheet of unknown origin, which included one row devoted to defendants' loan and eight untitled columns containing dates and numbers. The spreadsheet was accompanied by a page of data suggesting that defendants' loan was part of a much larger transaction that involved the sale of over six thousand loans with an aggregate original balance of over $900,000,000.

In Orrison's second certification, she averred that she contacted her "document team (LDDM)" to make inquiries of "the custodian of the documents for [defendants'] loan." Orrison was advised by the LDDM that it "contacted Hong Dang, who is a file clerk with The Bank of New York Mellon Trust Company N.A., the Custodian for [Sutton]" and received a letter (called a "certification"), dated on September 11, 2009, from a "Senior Associate" at the custodian outlining the nature of the sale of defendants' loan. Orrison added, without indicating a source, that the custodian "was responsible for sending Counsel the original Note, which is now in the possession of [Sutton's attorneys]." No date was given for when Sutton's counsel came into possession of the Note.

Defendants stopped paying their loan in May 2008. On November 20, 2008, MERS assigned defendants' mortgage to Sutton. One day later, Sutton filed its complaint in foreclosure against defendants.*fn2 Defendants were served with the pleadings in December 2008, but took no formal action for several months.

In the interim, Sutton applied for the entry of default. A default judgment was finally entered against defendants on December 17, 2009. The lag between the filing of the complaint in November 2008 and the entry of final judgment in December 2009 was not caused by defendants' action or inaction.

Less than two months later, in February 2010, defendants moved to set aside the default judgment. Marsha Bagley submitted a certification indicating that she and her husband "filed for bankruptcy" in June 2008, after stopping mortgage payments one month earlier. They sought to re-finance the mortgage and also met with an attorney "in late October or early November, 2008." After being served with the foreclosure complaint, defendants forwarded the papers to the attorney, who they thought "was going to file papers for [them]."

Thereafter, defendants received "some more papers about a default and that [j]udgment would be entered against [them]." They were receiving correspondence "from a company called HomEq Servicing, which said that it wanted to work out a settlement of the foreclosure." All of this correspondence was sent to their attorney, but nothing was done. They found a new attorney in December 2009, who filed the motion to vacate the default judgment.

The Chancery judge permitted the parties two opportunities for oral argument. He allowed both sides to supplement their original submissions and insightfully reviewed their contentions. The judge asked pointed questions of the advocates and gave the attorneys extra opportunities to respond even after the close of oral argument. In short, the judge proceeded cautiously and with an appreciation of what was at stake for both sides.

After marshalling what the parties provided, and reviewing their submissions in detail, the court denied defendants' motion. It held that it "wasn't overly impressed with the excusable neglect portion" of defendants' arguments, largely because of defendants' approximate fifteen-month silence between the filing of the complaint (November 2008) and the filing of the motion to set aside the default judgment (February 2010). The court also held that "the standing/capacity argument . . . falls short." It determined that defendants had not demonstrated a meritorious defense, one "that would ultimately prove to be successful on a substantive basis." In a supplementary conclusion, the motion court declared that "[a]s a result of all of the facts I've already [stated] on the record, I find that when the transfer of the note occurred in March of 2007, that [Sutton] became the holder in due course of the note in question." Consequently, defendants' putative grievances against New Century would not constitute defenses adverse to Sutton. This appeal followed.



The standard of review of a motion to vacate a default judgment is abuse of discretion. See F.B. v. A.L.G., 176 N.J. 201, 207 (2003); see also Del Vecchio v. Hemberger, 388 N.J. Super. 179, 186-87 (App. Div. 2006). The motion court's judgment will be left undisturbed "unless it represents a clear abuse of discretion." Hous. Auth. of Morristown v. Little, 135 N.J. 274, 283-84 (1994). From our review of the record, we perceive that the motion court's discretion was mistakenly exercised.

Rule 4:50-1 governs relief from final judgments and orders:

On motion, with briefs, and upon such terms as are just, the court may relieve a party or the party's legal representative from a final judgment or order for the following reasons: (a) mistake, inadvertence, surprise, or excusable neglect; (b) newly discovered evidence which would probably alter the judgment or order and which by due diligence could not have been discovered in time to move for a new trial under [Rule] 4:49; (c) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (d) the judgment or order is void; (e) the judgment or order has been satisfied, released or discharged, or a prior judgment or order upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment or order should have prospective application; or (f) any other reason justifying relief from the operation of the judgment or order.

Applications to vacate default judgments are liberally construed so that cases may be decided on the merits. Pressler & Verniero, Current N.J. Court Rules, comment 4.1 on R. 4:50-1 (2012); Prof'l Stone, Stucco & Siding Applicators, Inc. v. Carter, 409 N.J. Super. 64, 68 (App. Div. 2009). A default judgment, however, will not be disturbed unless defendants can "establish that [their] failure to answer was due to excusable neglect and that [they have] a meritorious defense." Goldhaber v. Kohlenberg, 395 N.J. Super. 380, 391 (App. Div. 2007).


The party seeking to vacate a default judgment has the "overall burden of demonstrating that its failure to answer or otherwise appear and defend should be excused." Jameson v. Great Atl. and Pac. Tea Co., 363 N.J. Super. 419, 425-26 (App. Div. 2003), certif. denied, 179 N.J. 309 (2004). The meritorious defense requirement is only waived upon proof that the default was obtained through defective service of process. Rogan Equities, Inc. v. Santini, 289 N.J. Super. 95, 113-114 (App. Div.), certif. denied, 145 N.J. 375 (1996).

The motion court focused primarily on the fifteen month lag between the filing of the complaint and the filing of the motion. It was unconvinced that an adequate explanation was provided for defendants' inaction, and was unforgiving in light of the passage of time. We view the court's analysis as unduly harsh, which resulted in an abuse of discretion.

Defendants maintained that they were in contact with an attorney early in the foreclosure process. That attorney supposedly did very little to assist defendants, and did nothing to defend the foreclosure action. However, when defendants retained their current attorney, he expeditiously researched their situation and moved decisively less than two months later to set aside the default judgment. The advocacy was so effective, at least initially, that the court commanded Sutton to explain several factual ambiguities and omissions in its papers.

The court was critical of the absence of an explanation from defendants' first attorney for his lackluster representation. The court also paid close attention to defendants' admitted failure to pay the mortgage since May 2008 and considered that duration of arrears highly probative in its analysis of defendants' failure to participate in the litigation.

We conclude that these concerns were not material to the excusable neglect calculus because defendants' explanations, indulgently reviewed, are both rationally supported and consistent with the facts. The need for a further foundation to explain why they did not answer the complaint was mitigated because they appeared in court less than sixty days after the default judgment was entered.


On the meritorious defense side of the ledger, we also disagree with the conclusions of the motion court. Much decisional law has developed -- addressing both substantive and procedural issues -- relating to mortgage foreclosures since the Chancery Division decided this matter.*fn3 With the aid of such jurisprudential hindsight, we readily observe that it was improvident for the motion court to have authoritatively determined Sutton's status as a holder in due course without the benefit of discovery. Furthermore, the motion record does not provide standing-to-sue clarity vis-a-vis Sutton's ownership and possession of the note prior to the November 21, 2008 filing of the complaint. Lastly, we are struck by the unnerving imprecision and lack of personal knowledge as found in Orrison's certifications. We do not, of course, challenge the credibility of the certifications, but conclude that they suffer from the same type of deficiencies identified in Ford, supra, 418 N.J. Super. at 599-600 and Mitchell, supra, 422 N.J. Super. at 225-26.

In light of the clarification and amplification of the law, we conclude that defendants presented adequate evidence that their affirmative defenses were not futile. We need not, as the motion court concluded, admeasure the actual success of any of defendants' defenses. They may or may not prevail at the appropriate time. However, because defendants have adequately demonstrated that they possess claims that may avoid the entry of a final judgment against them, they should be allowed to interpose an answer and defend Sutton's theories of the case. This matter presents a clear example of one that "should be 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).

Reversed and remanded for further proceedings in accordance with this opinion. We do not retain jurisdiction.

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