Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Us Bank, N.A v. Nikia Hough

May 22, 2012

US BANK, N.A., PLAINTIFF-APPELLANT AND CROSS-RESPONDENT,
v.
NIKIA HOUGH, DEFENDANT-RESPONDENT AND CROSS-APPELLANT, AND MR. HOUGH, HUSBAND OF NIKIA HOUGH; NEW JERSEY DEPARTMENT OF COMMUNITY AFFAIRS; COUNCIL ON AFFORDABLE HOUSING; TOWNSHIP OF PISCATAWAY; NEW JERSEY HOUSING AND MORTGAGE FINANCE AGENCY; STATE OF NEW JERSEY; AND THE COMMONS AT PISCATAWAY, INC., DEFENDANTS.



On certification to the Superior Court, Appellate Division, whose opinion is reported at The opinion of the court was delivered by: Justice Albin

SYLLABUS

(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, N.A. v. Nikia Hough

(A-82/83) (067029)

Argued November 7, 2011

Decided May 22, 2012

ALBIN, J., writing for a majority of the Court.

In this appeal, the Court interprets the meaning of N.J.A.C. 5:80-26.18(e), the enforcement provision that applies when a lender issues an excessive loan that is secured by an affordable housing unit in violation of regulations implementing the Fair Housing Act (FHA), N.J.S.A. 52:27D-301 to -329.19.

The FHA is a statutory scheme intended to promote affordable housing in New Jersey. Under the Act, the Housing and Mortgage Finance Agency (HMFA) is charged with establishing programs to assist municipalities in meeting their obligation to provide affordable low- and moderate-income housing. In carrying out its statutory charge, HMFA promulgated the Uniform Housing Affordability Controls, regulations controlling the use and sale of affordable housing units. N.J.A.C. 5:80-26.1 to -26.26. One such regulation prohibits a lending institution from issuing a loan -- secured by an affordable housing unit -- that "exceed[s] 95 percent of the maximum allowable resale price of that unit." N.J.A.C. 5:80-26.8(b). To enforce this policy, HMFA declared that "[a]ny loan issued in violation of [these regulatory provisions] shall be void as against public policy." N.J.A.C. 5:80-26.18(e). In addition, an affordable housing unit owner may not incur an indebtedness secured by the unit "unless and until the administrative agent has determined in writing that the proposed indebtedness complies with the [applicable affordable housing regulations]." N.J.A.C. 5:80-26.8(a).

Defendant Nikia Hough purchased an affordable housing condominium unit in Piscataway Township for $68,142.86, financing the purchase through a $61,329.00 loan. A year later, Hough refinanced her home, which, at the time, had a resale value of approximately $68,735. Mortgage Lenders Network USA, Inc., plaintiff US Bank's predecessor, issued a thirty-year loan to Hough in the amount of $108,000.00. In turn, Hough gave Mortgage Lenders a mortgage on the property securing the entire amount of the loan. The loan exceeded 95% of the maximum allowable resale price of the unit in violation of N.J.A.C. 5:80-26.8(b). Hough did not report, as required by N.J.A.C. 5:80-26.8(a), the refinancing to the administrative agent of the Township who ensures compliance with the appropriate laws governing affordable housing.

Hough defaulted on the loan. US Bank filed a foreclosure complaint, naming a number of defendants, including Hough, the Township, and HMFA. The complaint sought the sale of the mortgaged property and a declaration that US Bank's mortgage had priority over any other legal interests attached to the property. US Bank moved for the entry of default. Hough moved to dismiss the complaint on the ground that the loan violated N.J.A.C. 5:80-26.8(b). The Chancery Division declined to void the mortgage or the loan, finding that to do so would result in a windfall to Hough. The Appellate Division reversed. 416 N.J. Super. 286 (App. Div. 2010). The panel invited the Attorney General, on behalf of HMFA, to address the proper interpretation of N.J.A.C. 5:80-26.18(e). HMFA took the position that when a lending institution issues an excessive loan secured by an affordable housing unit, N.J.A.C. 5:80-26.18(e) voids only the mortgage, not the underlying indebtedness. The panel accepted HMFA's interpretation, finding that it was not "plainly unreasonable." Thus, US Bank lost its status as a secured creditor but was allowed to pursue a judgment for the full repayment of the loan. The Court granted US Bank's petition for certification and Hough's cross-petition for certification. 205 N.J. 184 (2011).

HELD: According to the plain language of N.J.A.C. 5:80-26.18(e), the portion of the loan exceeding the permissible limits of N.J.A.C. 5:80-26.8(b) is void and not collectible by the lender; the remainder of the loan is valid and secured by the affordable housing unit.

1. The focal point of this case is the meaning of N.J.A.C. 5:80-26.18(e). The Court conducts a de novo review when construing a law. Determining the intent of the drafter is the Court's paramount goal when interpreting a regulation. The Court looks to the actual language of the enactment to determine the drafter's intent and must construe the regulation as written. The Court will only look to extrinsic evidence when a fair reading leads to more than one plausible interpretation. Significantly, nothing in the history of the rulemaking process leading to the promulgation of N.J.A.C. 5:80-26.18(e) sheds light on the meaning of the regulation beyond its plain language. (pp. 11-16)

2. Although this appeal does not come from a final agency determination, the Appellate Division invited HMFA's interpretation of N.J.A.C. 5:80-26.18(e) and this Court has granted HMFA amicus status in this appeal. The Court defers to an agency's interpretation of a regulation, within the sphere of its authority, unless the interpretation is "plainly unreasonable." Because the regulation falls within HMFA's sphere of authority, the Court will accord due deference to HMFA's interpretation, but will not be bound by a "plainly unreasonable" interpretation. (pp. 16-17)

3. Based on N.J.A.C. 5:80-26.18(e)'s language, it is against public policy for a lending institution to issue a loan secured by an affordable unit for an amount in excess of the restricted price. Because the deed restrictions are recorded as public documents, lending institutions can easily determine whether a unit has a restricted price. Whatever fault may lie with Hough for failing to seek approval from Piscataway Township's administrative agent before taking on the indebtedness, the lender did not exercise simple due diligence before issuing a loan that exceeded the permissible limits. The regulation concentrates on the excessiveness of the loan as the chief evil, and a bank can reasonably be expected to know that persons who qualify for affordable housing are unlikely prospects for paying off an exorbitant loan. (pp. 17-19)

4. The Court disagrees with HMFA that it is the mortgage secured by the affordable property that offends the regulation and is void as against public policy. N.J.A.C. 5:80-26.18(e) states that the "loan issued in violation of this subsection shall be void as against public policy." It is the excessive loan, not the mortgage, which is void under the regulation's plain language. If the drafters intended the voiding of the mortgage to be the remedy, the regulation would state that. The Court cannot insert qualifications into a regulation that are not evident by the enactment's language; the regulation must be enforced as written, unless doing so would lead to an absurd result. Reading the plain language in a commonsense manner, the "loan" that violates the affordable housing regulations is that part in excess of 95% of the maximum resale price of the unit. It is the excessive amount that is void as against public policy. HMFA's interpretation is "plainly unreasonable" because it is not supported by the regulation's language. (pp. 20-22)

5. Although Hough argues that the regulation voids both the entirety of the loan and the mortgage, there is no reason why Hough should not be responsible for the lawful portion of the loan -- the portion representing 95% of the maximum resale price of her unit -- or for the mortgage securing that part of her debt. She will be relieved of repaying the remaining portion, which is "void as against public policy." US Bank's position -- that an equitable mortgage equal to 95% of the maximum resale price should be imposed and the illegally excessive part of the loan should be collectible by other means -- is unpersuasive. The regulation does not disturb its mortgage up to the legally permissible limits, so there is no need for an equitable mortgage. Moreover, N.J.A.C. 5:80-26.18(e) voids the excessive part of the loan as against public policy. (pp. 22-23)

The judgment of the Appellate Division is REVERSED and the matter is REMANDED to the trial court for further proceedings consistent with the Court's opinion.

JUSTICE LaVECCHIA, DISSENTING, is of the view that HMFA's interpretation of N.J.A.C. 5:80-26.18(e), its own regulation, should prevail because it is not "plainly unreasonable."

CHIEF JUSTICE RABNER, JUSTICES HOENS and PATTERSON, and JUDGE WEFING (temporarily assigned) join in JUSTICE ALBIN's opinion. JUSTICE LaVECCHIA filed a separate, dissenting opinion.

Argued November 7, 2011

JUSTICE ALBIN delivered the opinion of the Court.

The Fair Housing Act, N.J.S.A. 52:27D-301 to -329.19, is a statutory scheme intended to ensure that municipalities fulfill their constitutional obligation to provide affordable housing to New Jersey's low- and moderate-income residents. Under the Act, the Housing and Mortgage Finance Agency (HMFA) is charged with the responsibility of establishing programs to assist municipalities in meeting their obligation to provide affordable low- and moderate-income housing. N.J.S.A. 52:27D-321.

In carrying out its statutory charge, HMFA promulgated regulations controlling the use and sale of affordable housing units. See N.J.A.C. 5:80-26.1 to -26.26. One such regulation prohibits a lending institution from issuing a loan -- secured by an affordable housing unit -- that "exceed[s] 95 percent of the maximum allowable resale price of that unit." N.J.A.C. 5:80-26.8(b). To enforce this policy, HMFA declared that "[a]ny loan issued in violation of [these regulatory provisions] shall be void as against public policy." N.J.A.C. 5:80-26.18(e).

The bank in this case issued a loan to the owner of an affordable housing unit -- secured by a mortgage -- in excess of 95% of the allowable resale price of the unit. Notice of the resale-price restriction was set forth in the deed. The unit owner later defaulted on the loan. The Chancery Division declined to void the mortgage or the loan, finding that to do so would result in a windfall to the unit owner.

Giving deference to HMFA's interpretation of its own regulations, the Appellate Division held that the lender's violation of the regulatory scheme required the voiding of the mortgage securing the affordable housing unit, but not the loan or even the amount of the loan in excess of the lawful permissible limits.

We now reverse. Although we accord great deference to a state agency's interpretation of a regulation within the sphere of its expertise, we cannot ignore the clear, straightforward language of N.J.A.C. 5:80-26.18(e), which states that the loan violating the maximum permissible limit, not the mortgage, "shall be void as against public policy." HMFA's interpretation of its regulation only permits the voiding of the mortgage, not the unlawful excess portion of the loan. That interpretation is plainly unreasonable because it permits a lending institution to collect the unlawful part of a loan that the regulation declares to be void. Read in a commonsense manner in accordance with its plain language, N.J.A.C. 5:80-26.18(e) strips the lending institution of any profit from the unlawful portion of a loan it issues, ensuring both that low- and moderate-income housing unit owners will not be saddled with debts they cannot afford and that lenders will not engage in predatory lending practices.

I.

A.

Defendant Nikia Hough met the limited income requirements for a qualified purchaser of a condominium unit under Piscataway Township's Affordable Housing Program.*fn1 In January 2004, Hough bought an affordable housing condominium unit for $68,142.86, financing the purchase through a $61,329.00 loan issued by Wells Fargo Home Mortgage, Inc.*fn2 The Uniform Housing Affordability Controls (UHAC) promulgated by HMFA, N.J.A.C. 5:80-26.1 to -26.26, and the Township's ordinances controlled the sale and resale price of Hough's condominium unit. The Affordability Controls also prohibit a lending institution from issuing a loan, secured by an affordable housing unit, exceeding 95% of the unit's allowable resale price as set by the Township.

N.J.A.C. 5:80-26.8(b).

A year later, in March 2005, Hough refinanced her home, which, at the time, by the Township's calculation, had a resale value of approximately $68,735. Mortgage Lenders Network USA, Inc. (Mortgage Lenders) issued a thirty-year loan to Hough in the amount of $108,000.00, with a fluctuating interest rate between 7.8% and 13.8%. In turn, Hough gave Mortgage Lenders a mortgage on the property securing the entire amount of the loan.*fn3

Both the deed and mortgage referenced the restrictions set forth in Piscataway's affordable housing ordinances. The proceeds from the loan satisfied Hough's pre-existing debts, including monies owed on the Wells Fargo loan and unpaid property taxes, and netted Hough a disbursement of $20,080.45.

Hough did not report, as required by N.J.A.C. 5:80-26.8(a), the refinancing to the administrative agent of the Township who ensures compliance with the appropriate laws governing affordable housing. The loan issued by Mortgage Lenders far exceeded the allowable resale price of the condominium unit and violated N.J.A.C. 5:80-26.8(b)'s bar against loans that exceed 95% of the maximum allowable resale price of the unit.

By February 2007, Hough defaulted on the loan by failing to make the required monthly payment. The loan and mortgage were assigned to US Bank, which, in June 2007, filed an action to foreclose on the property.*fn4 In July 2008, US Bank filed an amended foreclosure complaint, naming a number of defendants, including Hough, Piscataway Township, and the New Jersey Housing and Mortgage Finance Agency (HMFA).*fn5 The complaint sought the sale of the mortgaged property and a declaration that US Bank's mortgage had priority over any other legal interests attached to the property.

In September 2008, US Bank moved for the entry of default against all defendants. Thereafter, Piscataway Township filed an answer basically asserting that the foreclosure action was subject to the Township's affordable housing restrictions in the deed. Through a consent order, US Bank agreed to be bound by those restrictions. In essence, US Bank stipulated that it would not seek a resale price higher than the one allowed by the applicable affordable housing regulations and ordinances and that the unit would be sold only to a qualified buyer.

In January 2009, US Bank filed a notice for entry of final judgment. In March 2009, wrongly believing that a final judgment had already been entered, Hough moved to vacate the non-existent judgment and to dismiss US Bank's complaint on the ground that the loan violated the cap permissible under N.J.A.C. 5:80-26.8(b). The Chancery Division did not catch Hough's mistake and denied the motion to vacate. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.