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Hsbc Bank, Usa, National Association, As Trustee For Phh 2007-2 v. Carlos Polanco; Mrs. Carlos Polanco


March 21, 2012


On appeal from the Superior Court of New Jersey, Chancery Division, Union County, Docket No. F-47554-08.

Per curiam.


Argued: December 7, 2011

Before Judges Axelrad and Sapp-Peterson.

In this mortgage foreclosure case, defendants Carlos Polanco and Anny C. Santana appeal from orders entered on October 29, 2010, denying their motion to vacate default judgment, and January 21, 2011, denying their motion to quash the writ of execution. Defendants defaulted on their mortgage payments, unsuccessfully attempted to short sell their property, were unsuccessful in reaching an agreement in mediation, obtained several adjournments of a sheriff's sale, and filed bankruptcy. On the eve of the last-adjourned sheriff's sale following a Bankruptcy Court order vacating the automatic stay, defendants finally sought to vacate default judgment or dismiss the complaint without prejudice. Defendants argued that plaintiff did not have standing and failed to comply with the Fair Foreclosure Act (FFA), N.J.S.A. 2A:50-53 to -68, and they demonstrated excusable neglect and a meritorious defense. The court denied defendants' motion. We affirm.

On February 7, 2007, defendants borrowed $531,480 from PHH Mortgage Corporation (PHH Mortgage) to purchase a home located in Elizabeth, secured by a note and purchase money mortgage.*fn1

The mortgage was recorded with the Union County Clerk on February 20, 2007. On August 1, 2008, they defaulted on the loan.

On November 24, 2008, the mortgage "TOGETHER with the Bond, Note, or other Obligation therein described or referred to, and the money due and to become due thereon, with the interest[]" was assigned to plaintiff HSBC Bank USA, National Association, as Trustee for PHH 2007-2. The assignment was recorded by the Union County Clerk on December 17, 2008.

On December 2, 2008, plaintiff filed a foreclosure complaint against defendants. Plaintiff recited the aforementioned history, stating, among other items, that it was the "owner and/or holder of the Note and Mortgage" and "Notice was sent in compliance with the fair foreclosure act more than 31 days prior to filing of the within complaint." Defendants were personally served the complaint at their residence on December 15, 2008. Defendants did not file an answer or respond to the complaint.

Default was entered by the court on January 20, 2009. Defendants attempted a short sale of their property, and by letter of January 27, 2009, were sent an approval package contingent on completion by February 27, 2009. For unknown reasons, the short sale was not completed; Polanco certified that after they found a buyer, PHH Mortgage refused to proceed with the closing. On February 11, 2009, plaintiff forwarded to defendants the appropriate notice of entry of default pursuant to the FFA, N.J.S.A. 2A:50-56(c). On November 16, 2009, the court entered final judgment of foreclosure by default. A writ of execution was entered by the court on November 29, 2009 (incorrectly dated November 29, 2010). On December 2, 2009, plaintiff mailed defendants a copy of the final judgment.

By letter of December 30, 2009, defendants were informed the property was scheduled for sheriff's sale on January 20, 2010. Plaintiff's counsel certified that Polanco contacted him on January 15, 2010 about pursuing a loan modification, and counsel provided the phone number for plaintiff's loss mitigation department. Defendants then obtained two statutory adjournments of the sheriff's sale. N.J.S.A. 2A:17-36. Defendants subsequently filed an emergent application to stay the February 17, 2010 sheriff's sale. Over plaintiff's objection, the sale was adjourned to May 26, 2010 to allow defendants the opportunity to participate in a foreclosure mediation program.*fn2 The parties entered into mediation on May 18, 2010, but were unsuccessful in reaching an agreement. Plaintiff's counsel certified that defendants were represented by counsel at mediation, during which their financial information was reviewed for a loan modification, but was insufficient to support a modified payment or qualify under a federal modification program.

On the eve of the sheriff's sale, through present counsel, Santana filed for Chapter 7 bankruptcy. An order vacating the bankruptcy stay was entered on August 9, 2010.

On August 31, 2010, defendants filed a notice of motion "for an Order either dismissing the Complaint without prejudice or setting aside Default Judgment against [defendants], and allowing them to file a responsive pleading."*fn3 Defendants' position for setting aside the default judgment as stated in counsel's certification was as follows:

[P]laintiff has failed to prove that it is the real party in interest, and is subject to an affirmative defense of predatory lending, actual fraud, consumer fraud and violations of federal banking law. Moreover, HSBC admits that it took assignment of the mortgage after default; therefore, it cannot be a holder in due course and is subject to affirmative defenses.

At oral argument on October 29, 2010, defense counsel stated, in pertinent part, "[i]t's our position that if there's no standing, any judgment would have been void, not voidable because it can't be waived" and that defendants "were proactive both before the default and after the default so we believe there's excusable neglect" and the "predatory lending claims are their meritorious defense." He concluded,

So we're asking, if there's a finding of no standing or a violation of the notice of intention to foreclose, that the case be dismissed without prejudice. And otherwise if, if The Court does find there is standing, that The Court find that there's excusable neglect and a meritorious defense to allow us to have our day in court to reduce the amount that's due on the mortgage.

The court rendered a decision denying the motion, finding defendants failed to demonstrate excusable neglect. The judge concluded that defendants essentially chose a course of action designed to delay the process rather than defend the action with a meritorious defense. The judge explained that notwithstanding the assertion that "defendants lack sophistication in real estate matters[,]" they were "able to obtain a stay of the sheriff's sale, participate in the mediation process, file for bankruptcy and attempt to utilize the short sale process." However, "despite notices to them at every step of the litigation," for more than a year and a half defendants failed "to take any step[s] to protect their rights." The judge was also unpersuaded by defendants' challenge to standing, noting it was clear from the assignment itself that both the mortgage and underlying obligation had been assigned. His ruling was memorialized in an order of the same date.

The property was scheduled for sheriff's sale on January 26, 2011. About a month before, defendants filed a motion to set aside the writ of execution. The judge denied the motion by order of January 21, 2011. He explained in an oral decision on that date that defendants' motion was essentially an application for reconsideration based on recent administrative orders pertaining to "robo-signing" practices in residential foreclosures. Noting the subject judgment, entered in November 2009, pre-dated the administrative orders and was not subject to review thereunder, the judge found there was no new evidence to consider that would warrant reconsideration. This appeal ensued.*fn4

On appeal, defendants argue: (l) plaintiff provided no proof the PHH 2007-2 trust exists and it thus cannot demonstrate standing; (2) even if the trust exists, plaintiff cannot demonstrate standing and the case should be dismissed without prejudice; and (3) plaintiff failed to comply with the FFA, which requires dismissal of the complaint without prejudice. Based on our review of the record and applicable law, we are not persuaded by any of defendants' arguments.

Defendants challenge plaintiff's standing to file the foreclosure, arguing it provided no proof the trust listed in the caption, PHH 2007-2, exists. They alternatively argue that plaintiff cannot demonstrate standing because it never produced the original note so it did not demonstrate possession; it provided no proof of how the note was transferred and cannot claim it is entitled to enforce the note under the Uniform Commercial Code because the note was not negotiated to plaintiff and plaintiff was not a non-holder in possession with the rights of a holder; it has not proved what it paid for the note; and it has not proved that any of the above happened prior to the filing of the complaint. Defendants urge that the proper disposition is dismissal of the complaint without prejudice.

We disagree. We first note that as distinguished from the posture of, for example, Wells Fargo Bank, N.A. v. Ford, 418 N.J. Super. 592 (App. Div. 20ll) or Bank of New York v. Raftogianis, 418 N.J. Super. 323 (Ch. Div. 2010), defendants did not raise the standing issue promptly in the foreclosure litigation. Rather, they asserted it in a Rule 4:50-1 motion filed nine months after the entry of the default judgment (and almost two years after defendants had been served with the foreclosure complaint), virtually without any explanation for the delay.*fn5

In U.S. Bank National Ass'n v. Guillaume, ___ N.J. ___ (20l2) (slip op. at 18-19), a foreclosure case, the Supreme Court recently reiterated that the standard for a party seeking to vacate a default judgment is set forth in Rule 4:50-1. The grounds are:

(a) mistake, inadvertence, surprise, or excusable neglect; (b) newly discovered evidence which would probably alter the judgment or order and for which by due diligence could not have been discovered in time to move for a new trial under R. 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.

[R. 4:50-1.]

The Court in Guillaume further explained the purpose and application of Rule 4:50-1:

The rule is "'designed to reconcile the strong interests in finality of judgments and judicial efficiency with the equitable notion that courts should have authority to avoid an unjust result in any given case.'" Mancini v. EDS, 132 N.J. 330, 334 (1993) (quoting Baumann v. Marinaro, 95 N.J. 380, 392 (1984)).

The trial court's determination under the rule warrants substantial deference, and should not be reversed unless it results in a clear abuse of discretion. See DEG, LLC v. Twp. of Fairfield, 198 N.J. 242, 261 (2009); Hous. Auth. of Morristown v. Little, 135 N.J. 274, 283 (1994). The Court finds an abuse of discretion when a decision is "'made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis.'" Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88, 123 (2007) (quoting Flagg v. Essex Cnty. Prosecutor, 171 N.J. 561, 571 (2002)). [Guillaume, supra, slip op. at 19.]

See also Orner v. Liu, 419 N.J. Super. 431, 437 (App. Div.) (holding that motions made within all subsections of Rule 4:50-1 must be filed within a reasonable time under the circumstances), certif. denied, 208 N.J. 369 (2011); R. 4:50-2.

Defendants do not even cite Rule 4:50-1 in their brief. Nor do they reference or provide any explanation for the subsection upon which they rely for setting aside the foreclosure judgment. To the extent defendants are relying on subsection "a" -- excusable neglect -- defendants provided no explanation for their failure to file an answer to or otherwise defend the foreclosure action. The record amply supports the finding by the trial judge that defendants failed to demonstrate excusable neglect and, in fact, seemed well aware of the process so as to delay the proceedings post-judgment rather than defend the foreclosure complaint. In fact, defendants make no argument to the contrary.

Although we need not even address the second prong, we are satisfied defendants have not established a meritorious defense by way of their standing or FFA challenges. Nor have defendants demonstrated that either of these purported defenses render the judgment void under Rule 4:50-1(d), defendants' most likely position though not articulated as such.

Standing "refers to the plaintiff's ability or entitlement to maintain an action before the court." New Jersey Citizen Action v. Riviera Motel Corp., 296 N.J. Super. 402, 409 (App. Div.), certif. granted, 152 N.J. 13 (1997), appeal dismissed as moot, 152 N.J. 361 (1998). Entitlement to sue requires a "sufficient stake in and real adverseness with respect to the subject matter" and a substantial likelihood of harm to the plaintiff by an unfavorable decision. Stubaus v. Whitman, 339 N.J. Super. 38, 47 (App. Div. 2001) (internal quotation marks and citation omitted), certif. denied, 171 N.J. 442 (2002). "A lack of standing by a plaintiff precludes a court from entertaining any of the substantive issues presented for determination." In re Adoption of Baby T, 160 N.J. 332, 340 (l999). See also Watkins v. Resorts Int'l Hotel & Casino, Inc., 124 N.J. 398, 424 (1991).

It is undisputed that defendants defaulted on the underlying loan. Mortgages "provide security for the debtor's obligation to pay an underlying obligation, ultimately permitting the mortgagee to force the sale of the property to satisfy that obligation." Raftogianis, supra, 418 N.J. Super. at 327. To have standing to foreclose a mortgage, a party generally must "own or control the underlying debt." Ford, supra, 418 N.J. Super. at 597 (quoting Raftogianis, supra, 418 N.J. Super. at 327-28). We are satisfied plaintiff had standing to foreclose the mortgage on defendant's property. Plaintiff presented sufficient evidence that it had the right to enforce the mortgage and had the authority to proceed at the time of the filing of the foreclosure complaint. See Raftogianis, supra, 418 N.J. Super. at 351-52. The contents of plaintiff's mortgage foreclosure complaint complied with the requirements of Rule 4:64-1(b) in effect at the time.*fn6 The specifics of the assignment of mortgage from defendants' lender to plaintiff, which expressly encompassed the note and which pre-dated the filing of the complaint, were recited in the complaint. The Rule does not require parties to include information contained within the trust document, such as a pooling and servicing agreement or a prospectus. R. 4:64-1(b). Moreover, as recited in the November 16, 2009 final judgment, plaintiff produced the supporting instruments required by Rule 4:64-1(d) and Rule 4:64-2, namely, the obligation, mortgage, assignment of mortgage, and an affidavit of amount due, which were satisfactory to the court for the entry of judgment.

We turn now to defendants' FFA challenge. Though not in the record, it appears undisputed the notice of intention to foreclose (NOI) under the FFA, sent to defendants on July 19, 2009, only listed the name, address, and contact information of the loan servicer, not the lender. Relying on N.J.S.A. 2A:50-56(c)(ll)*fn7 of the FFA and Appellate and Chancery Division decisions culminating in Bank of New York v. Laks, 422 N.J. Super. 201 (App. Div. 2011), decided during the pendency of this appeal, defendants contend plaintiff's failure to provide the proper NOI constituted a violation of the FFA, demonstrating a meritorious defense and automatically entitling them to dismissal of the foreclosure complaint without prejudice. On February 27, 2012, our Supreme Court decided otherwise. Guillaume, supra, slip op. at 5, 37. The Court held that N.J.S.A. 2A:50-56(c)(ll) requires foreclosing plaintiffs to list the name and address of the actual lender on the NOI, in addition to contact information for any loan servicer involved in the mortgage, there is "no basis in the statutory language" to conclude that a NOI that substitutes the loan servicer for the lender achieves substantial compliance, and foreclosing parties must comply with this Legislative mandate. Id. at 4, 30-31. Nevertheless, the Supreme Court expressly overruled our decision in Laks to the extent we held the only remedy available to a trial court for such a violation was dismissal of the foreclosure complaint without prejudice. Id. at 5, 37. The Supreme Court held that a trial court adjudicating a foreclosure complaint in which the NOI does not comply with N.J.S.A. 2A:50-56(c)(11) has the discretion to fashion a variety of case-specific equitable remedies, keeping in mind the express statutory purpose of providing notice that "makes the debtor aware of the situation," and "enable[s] the homeowner to attempt to cure the default." Id. at 31-37 (internal quotation marks and citations omitted).

In the present case, it is clear defendants were thoroughly familiar with the status of their mortgage -- they attempted a short sale in February 2009, over two months after service of the foreclosure complaint; contacted plaintiff's counsel in January 2010 to explore a loan modification after they were advised of the scheduled sheriff's sale, and were provided the phone number of plaintiff's loss mitigation department; and obtained two statutory adjournments of the sheriff's sale. See id. at 38. Though not requested or phrased as such, we are satisfied the court, in essence, granted the remedy of a cure to the FFA violation by its emergent three-month stay of the February 17, 2010 sheriff's sale to allow defendants the opportunity to participate, with counsel, in loan modification mediation with plaintiff in May 2010. See ibid. Despite these efforts, defendants' financial information was insufficient to qualify for loan modification and they were unable to cure the default. We are thus satisfied the FFA neither provides a meritorious defense to this action within the meaning of Rule 4:50-1(a), nor is it a basis to void the foreclosure judgment under Rule 4:50-l(d).

Affirmed. The stay is vacated.

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